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FLSA Exemptions

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Compensation 101

  • Format: Self-paced
  • Course Duration: 1 hr 8 mins
  • SHRM Professional Development Credits: 1.0
  • HRCI General Recertification Credits: 1.25
  • Certificate of Completion (after passing quiz)

Compensation plays a significant role in an organization's success. A compensation strategy must be designed well to attract and retain talent. As the single largest expense for most companies, it's imperative to develop the right pay structure and appropriate recognition methods. This course is for HR Generalists who need to learn basic compensation principles and their application to the business. During this course, you'll learn about developing a compensation strategy, methods for conducting a job analysis, developing job descriptions, and setting up base and variable pay structures. Compensation is one of those topics you must understand to not only drive the success of your business but also build essential skills for a successful career in HR.

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Title: FLSA Exemptions
Module: Job Analysis & Description
Duration: 6:50

An important part of conducting a job analysis and writing a job description is to determine whether a job and the employees performing the job are exempt or nonexempt from the FLSA minimum wage and overtime requirements. Among other things, FLSA requires that most employees be paid at least the minimum wage rate and overtime at 1.5 times the employee’s regular rate of pay for hours worked over 40 in a workweek, unless the job is classified as exempt.

Many states also have wage and hour laws that must be met, including minimum wage and overtime requirements, and in such cases, an employer must comply with both the federal and state laws by complying with the requirements that benefit employees the most.

For example, At the time of this recording, in the US, the federal minimum wage rate is $7.25 per hour. The Massachusetts minimum wage rate is $11 per hour as of January 1, 2017. In this case, most employees in Massachusetts must be paid at least starting $11 per hour.

When determining the FLSA classification consider the following:
The default classification is always nonexempt. This is because a job and the employee performing the job is exempt from the minimum wage and overtime requirements only if very specific requirements are met.

The exemption status must be based on the actual work performed by the employee – not the employee’s job title or even the job description.

Classifying jobs for FLSA purposes should be performed by a seasoned compensation specialist with in-depth knowledge about the FLSA exemption requirements and reviewed by an attorney when necessary. This is because jobs incorrectly classified as exempt can lead to significant liability for an employer including lawsuits, back pay, attorney fees, and penalties.

The most commonly used FLSA exemptions are known as the white collar exemptions. There are six categories of white collar exemptions, which are:

  • Executive
  • Administrative
  • Professional
  • Outside sales
  • Computer employees
  • Highly compensated

Jobs are exempt based on meeting job duties tests and in most cases also a salary basis test which is the minimum salary required to be classified as exempt.

Let’s go over each of the exemption categories and their job duties tests. The executive exemption, all of the following job duties must be met:
Employee’s primary duty is managing the enterprise or managing a customarily recognized department or subdivision of the enterprise

And the employee regularly directs the work of at least two full-time employees or their equivalent

In addition, the employee has the authority to hire or fire employees, or the employee’s suggestions and recommendations regarding hiring, firing, advancement, promotion or other employment changes are given particular weight

With the administrative exemption, the employee’s primary duties must consist of both of the following:
First, performance of office or non-manual work directly related to the management of general business operations of the employer or employer’s customers (that is, the work is back office related such as Finance, HR, and IT)

And, a primary duty is exercising discretion and independent judgment for matters of significance

Moving on to the Professional and Learned category, all of the following must be met for a position to be exempt:
The employee’s primary duty is work that requires advanced knowledge, defined as work that is predominantly intellectual in character and that includes work requiring the consistent exercise of discretion and judgment
Advanced knowledge must be in a field of science or learning and customarily acquired through a prolonged course of specialized intellectual instruction (that is, generally, in order to be classified as exempt, the job has to require an advanced college degree usually at master’s or doctorate level).

In a slightly different category, Professional and Creative, the employee’s primary duty is the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

In the next category, Outside Sales, there is no salary basis test. However, the employee’s primary duty is sales or obtaining orders or contracts for services or for the use of facilities and the employee is customarily and regularly engaged away from the employer's place or places of business.

In the next category, Computer employees, all of the following must be met:

First, the employee must be employed as a computer system analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field performing the following duties:

Application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications

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

Design, documentation, testing, creation, or modification of computer programs related to machine operating systems or the combination of the above duties, the performance of which requires the same level of skills

Finally, for highly compensated employees, the salary basis test as of December 1, 2016 was $134,004. In addition, both of the following must be met to classify an employee as exempt:
First, the employee must be performing office or non-manual work

And secondly, the employee must be performing at least one of the duties of an exempt executive, administrative or professional employee

Instructor: Pamela Sande

Pamela Sande, CCP, is the Managing Principal of Pamela Sande & Associates, LLC. Pamela has over 25 years of human resources experience in both consulting and corporate roles, including as an HR executive and as a specialist in designing total rewards programs that drive organizational performance.

In her current role as Managing Principal, Pamela and...

Pamela's Full Bio

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