I continuously receive questions on which jobs should be paid hourly and which jobs should be paid with a salary. The correct question is which jobs are exempt and which jobs are non-exempt. These questions are answered by reviewing the regulations of the Fair Labor Standards Act (FLSA).
In its basic form the FLSA requires that workers are paid at least minimum wage for all hours worked and are paid at one and one-half the regular rate, or the overtime rate, for all hours worked over 40 in a work week. What can trip up employers is that there are exceptions to this regulation where some jobs are “exempt” from the overtime requirement. What is required for a job to be exempt (all must be met):
- The job must be paid on a salaried basis;
- The job cannot be paid less than $455* weekly (in Connecticut this is $475); and
- The job’s primary duties must meet FLSA requirements to be classified as Executive, Professional, Administrative and other exemptions.
The exemptions primarily used by employers are the Executive, Professional and Administrative. Others such as the Computer, Outside Sales, and Highly Compensated are used less frequently. It is important to note that both the Computer and Highly Compensated exemptions are not allowed in Connecticut. So, what are these exemptions?
All of the following tests must be met:
- The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455* per week;
- The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
- The employee must customarily and regularly direct the work of at least two or more full-time employees or their equivalent; and
- The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
All of the following tests must be met:
- The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455* per week;
- The employee’s primary duty must be 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; and
- The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
For both “Learned” and “Creative” all of the following tests must be met:
Learned – the employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not
less than $455* per week:
- The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
- The advanced knowledge must be in a field of science or learning; and
- The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
Creative – the employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455+ per week;
- The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
Exempt vs. Non-Exempt
Once a job is classified as exempt, employers must be careful in maintaining the exempt status by not treating the job as non-exempt. There are critical rules on when an exempt position can be and cannot be “docked” or receive a reduced salary. Some of these are:
- First and last week of work
- When ordered by court
- Full days off for vacation
- Infraction of a safety rule of major significance
- Full days off for other qualified reasons
Clearly, these regulations must be followed by all employers, but determining such grey areas such as “the exercising of discretion and independent judgement with respect to matters of significance for the company or organization” isn’t always an easy determination.
We at KardasLarson continuously assist our clients in assuring that jobs are properly classified as exempt or non-exempt to not only reduce risk, but also make sure employees receive the proper pay they are due.
* The U.S. Department of Labor is in the process of receiving comments on increasing this minimum weekly threshold.