Are You Exempt From Overtime Under The Fair Labor Standards Act? - ABA YLD 101 Practice Series

By Marcia Henry and James R. Cho

The Fair Labor Standards Act ("FLSA"), codified at 29 U.S.C. §§ 201-219, is an important piece of "New Deal" legislation passed in the 1930s as part of the American labor movement's press for the 40-hour work week. The FLSA requires employers to pay at least the federal minimum wage and overtime at time and one-half the employee's regular rate for all hours worked over 40 hours in a workweek. The FLSA exempts from the overtime provision employees in the following white-collar classifications: executive, administrative, professional, outside sales, and certain computer employees. In 2004, the U.S. Department of Labor ("DOL") updated the federal regulations governing the tests for determining whether an employee falls under any of the white-collar exemptions. See 29 C.F.R. Part 541. The number of FLSA cases -- both single plaintiff and class actions (referred to as "collective actions") has skyrocketed in recent years due in part to amendments to the regulations. This article provides a brief overview of the white-collar exemptions, but practitioners should consult the applicable DOL regulations carefully for a more in-depth understanding of these exemptions.

To be exempt, an employee must: (1) be paid the minimum weekly salary of $455 per week; (2) must be paid on a "salary basis" ( i.e., employee must regularly receive a predetermined amount that cannot be reduced because of variations in the quantity or quality of work performed); and (3) meet perform certain primary job duties. See 29 C.F.R. §§ 541.600(a), 541.602(a), 541.604. The "salary basis" test does not apply to outside salespersons, doctors, lawyers, teachers and certain computer employees paid at least $27.63 per hour.

Issues relating to the salary basis test
Employers must pay employees their full salary for any week in which the employee performs any work except in the following cases: (1) employee absent for full days for personal reasons; (2) employee absent for full days for sickness or disability and the employer has a policy for sick or disability leave; (3) to offset payments for jury duty, witness fees, or military pay; (4) penalties imposed for major safety violations; (5) unpaid disciplinary suspension of one or more full days; and (6) unpaid FMLA leave. Employers should be wary of making improper deductions as employees may lose their exempt status as a result. The regulations, however, provide for a "safe harbor" for employers to remedy improper deductions.

The following checklist identifies other factors necessary to establish the various exemptions:

Executive Exemption
29 C.F.R. § 541.100.

  • Primary duty ( i.e., principal, main, most important) is the management of the enterprise or a customarily recognized department or subdivision. Employees may still be exempt if they concurrently perform exempt and non-exempt duties. Their most important duty, however, must involve managing the department.
  • Customarily and regularly directs the work of two or more other full-time employees or their equivalent.
  • Has the authority to hire or fire other employees, or their suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.

Administrative Exemption
29 C.F.R. § 541.200.

  • Primary duty includes the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers. Primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
  • May be paid on a salary basis (minimum of $455 per week) or a fee basis ( i.e., rate must equal $455 per week if employee worked 40 hours).
  • Management of general business operations does not include selling in a retail or service establishment or production of the employer's goods or services.
  • "Discretion and independent judgment" requires employee to compare and evaluate alternative courses of action and acts or makes a decision after considering the various possibilities. This may include formulating policies, performing assignments, committing the employer in significant financial matters, negotiating for the employer, and deciding whether to deviate from standard practices and procedures without prior approval.
  • Administrative employees may rely on manuals or guidelines but employees must still exercise discretion or independent judgment rather than relying solely on a predetermine course of action.

Learned and Creative Professionals
29 C.F.R. § 541.300-.302.

  • They may be paid on a salary or fee basis.
  • For the learned professional, the primary duty must be the performance of work requiring advanced knowledge in a field of science or learning that is customarily acquired by a prolonged course of specialized intellectual instruction. Work must be intellectual in nature and require consistent exercise of discretion and judgment. Examples include doctors, nurses, lawyers, teachers, architects, engineers, scientists and pharmacists.
  • For the creative professional, theprimary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. Examples include employees who use ingenuity, creativity, originality and talent free from supervision and direction such as musicians and artists.

Outside Sales Exemption
29 C.F.R. § 541.500.

  • Primary duty involves making sales or obtaining orders or contracts for services or for the use of facilities for which the client or customer will pay consideration.
  • Must be customarily and regularly engaged away from the employer's place of business (does not include internet, telephone or mail sales).

Computer Employees
29 C.F.R. § 541.400.

  • Must be paid on a salary ($455 per week) or fee basis or hourly basis at a rate not less than $27.63 per hour.
  • Primary duties 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 above, the performance of which requires the same level of skills.
  • Employees may include systems analysts, programmers and software engineers.

Highly Compensated Employees
Employees who earn at least $100,000 per year are exempt from the FLSA overtime pay and minimum wage requirements if they regularly perform one or more of the exempt duties of an executive, administrative, or professional employee and perform office or non-manual labor. See 29 C.F.R. § 541.601(a).

Other considerations

  • Employees likely not exempt under the FLSA include blue-collar employees and first-responders ( i.e., police, firefighters, paramedics, EMTs, etc.). See 29 C.F.R. § 541.3.
  • Numerous states have laws that differ from the FLSA regulations and the FLSA provides that if a state's overtime laws are more favorable, the state law prevails.

While the checklists and definitions provided herein include the most important requirements for satisfying the various white-collar exemptions, practitioners should carefully review the FLSA regulations at 29 C.F.R. Part 541 for more detailed information.


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About the Author

Marcia Henry and James R. Cho, attorneys with the New York office of Seyfarth Shaw LLP, specialize in labor and employment law.

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