In 2014, President Obama directed the Department of Labor and the Secretary of Labor to revise the Fair Labor Standards Act (FLSA) rules, focusing on updating the definition of salary-exempt employee status. The DOL has only updated the FLSA regulations twice in the past 40 years, with the last update in 2004. That year, the Bush administration revamped the “white-collar” overtime exemptions, setting the minimum threshold for salary-exempt status at $455 per week, or $23,660 annually. Although the new regulations have not been released yet, there are reports that the administration aims for a minimum salary of $40,000.
Who Qualifies as Salary-Exempt?
There are several types of exemptions and each has their own test to determine whether or not they qualify for a salary-exempt position:
- Executives
- Administrative
- Professional
- Highly-Skilled
- Outside Salespersons
In this article, we will review the Executive exemption.
The Executive Exemption Test
The executive exemption usually covers managerial employees. Supervisors often do NOT meet the executive exemption test and may be classified as non-exempt. Below are the test qualifications for an Executive exemption. ALL of the test specifics must be met in order for the position to qualify.
- Must have the “primary duty” of managing the business where he/she works. “Primarily engaged in” or “primary duties” means that over half of the person’s work hours must be spent on exempt tasks. This means an exempt person needs to spend more than 50% of their time on exempt responsibilities, work that is directly linked to exempt tasks, and work that is seen as necessary for performing exempt functions. Later in this article, we will provide several examples of these duties.
- Must customarily and regularly direct the work of two or more other employees (two full-time or their equivalent). When defining two or more full-time employees, the language “or the equivalent” would refer to an individual directing the work of 1 full-time and two part-time employees which would constitute the equivalent of two full-time. Supervision of non-employees does not meet the standard.
- Must have the authority to hire or fire other employees or have “particular weight” given to suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees. Particular Weight is defined as having great influence over or impact in the final decision regarding the tangible employment of an individual.
- Customarily and regularly exercises discretionary and independent judgment. Discretionary and independent judgment is making decisions on matters of importance that drive the company business. This is different than making decisions that might cost the company money or can lead to serious loss, such as poor techniques, poor decisions, failure to follow instructions, violation of the law, etc.
- Earns a monthly income at least two times the state minimum wage for fulltime (40 hours per week) employee.
- Primarily engaged in duties that meet items 1-4 previously listed.
Below are more example of executive functions that would qualify for exempt status:
- Interviewing, selecting, and training employees;
- Setting, recommending or adjusting employees’ rates of pay and hours of work;
- Directing employees’ work;
- Maintaining employees’ production or sales records for use in supervision or control;
- Appraising employees’ productivity and efficiency;
- Deciding on tools, merchandise, materials and supplies;
- Handling employee complaints and grievances;
- Disciplining employees when necessary;
- Planning and controlling the budget;
- Controlling flow of products, services etc.;
- Monitoring or implementing legal compliance issues;
- Ensuring safety of property and employees;
When reviewing the various activities that would fall under the executive exemption, the law states that at least 50% of the position’s activities, duties and functions are engaged in behavior as defined above. An executive may delegate some of these duties to subordinate supervisors, such as disciplinary action, or providing input on performance appraisals, but that does NOT make that supervisor exempt because it would not be a part of their primary duties and tasks (at least not 50%).
This brings up a final important point. If the delegation of exempt duties to a non-exempt individual becomes a part of the non-exempt’s ongoing duties, HR must be notified and their job description needs to be updated. Changing the definition of tasks and duties might change the exempt/non-exempt status of the position.
In future articles we will review exemption status of other salaried positions.