Employee Engagement

Overview
The concept of exempt and nonexempt work comes from the FLSA and associated regulations and legal precedents. Among other things, the FLSA establishes that:

• Employee performing nonexempt duties must receive overtime pay.
• Exempt employees are exempt from the overtime provision of the act and need not be paid for overtime.

The company can be held legally liable for improper exemption classification of an employee. The burden of proof on defending the exemption rests with the company and is construed narrowly by auditors, in favor of employees.

Four major types of exemptions are:

• Executive
• Professional,
• Administrative, and
• Outside Sales.

Executive Exemption
Applicable to employees who have management as their primary duty; who direct the work of two or more full-time employees; who have the authority to hire and fire or make recommendations regarding decisions affecting the employment status of others; who regularly exercise a high degree of independent judgment in their work; who receive a salary which meets the requirements of the exemption; and who do not devote more than 20% of their time to non-management functions (40% in retail and service establishments).

Administrative Exemption
Applicable to employees who perform office or non-manual work which is directly related to the management policies or general business operations of their employer or their employer's customers, or perform such functions in the administration of an educational establishment; who regularly exercise discretion and judgment in their work; who either assist a proprietor or executive, perform specialized or technical work, or execute special assignments; who receive a salary which meets the requirements of the exemption; and who do not devote more than 20% of their time to work other than that described above (40% in retail and service establishments).

Professional Exemption
Applicable to employees who perform work requiring advanced knowledge and education, work in an artistic field which is original and creative, work as a teacher, or work as a computer system analyst, programmer, software engineer, or similarly skilled worker in the computer software field; who regularly exercise discretion and judgment; who perform work which is intellectual and varied in character, the accomplishment of which cannot be standardized as to time; who receive a salary which meets the requirements of the exemption (except doctors, lawyers, teachers and certain computer occupations); and who do not devote more than 20% of their time to work other than that described above.

Outside Sales Exemption
Applicable to employees who engage in making sales or obtaining orders away from their employer's place of business and who do not devote more than 20% of the hours worked by non-exempt employees of the employer to work other than the making of such sales.

Computer Employee Exemption
To qualify for the computer employee exemption, the following tests must be met (note that software professionals may also fall under the professional exemption):

• The employee must be compensated either on a salary or fee basis at a rate not less than $455 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour;
• The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below;
• The employee's primary duty must consist of:
  • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
  • The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
  • The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
  • A combination of the aforementioned duties, the performance of which requires the same level of skills.
    
    

The computer employee exemption does not include employees engaged in the manufacture or repair of computer hardware and related equipment. Employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs (e.g., engineers, drafters and others skilled in computer-aided design software), but who are not primarily engaged in computer systems analysis and programming or other similarly skilled computer-related occupations identified in the primary duties test described above, are also not exempt under the computer employee exemption.

Common Errors
According to the Department of Labor, the following is a list of common errors made when paying or classifying "exempt" employees:

• Employers without a formal sick leave policy docking salaried, exempt employees for time missed from work because of sickness.
• Employees not receiving full salary payments each week.
• Employees performing routine production type duties that seem related to general business operations but which have no bearing on setting of management policies.
• Employees who hold degrees performing jobs which are not professional in nature or to which the degree they hold is not applicable.
• Employers confusing job skills with the exercise of independent judgment and discretion.
• Employees placed on salary and classified as exempt without regard to duties or percentage of time spent in exempt duties.

Determining Professional and Administrative Exemptions
Determining professional and administrative exemptions can be particularly difficult. Refer to the Professional Exemption Worksheet or the Administrative Exemption Worksheet to assist in determining the proper FLSA classification. You can also refer to the Department of Labor web site on Exemptions.