Exempt Employees – Definition, Requirements, and Laws with Example

 Exempt employee refers to types of employees who are set out in Fair Labor Standards Act (FLSA). When an employee is exempt, they are spared from receiving the overtime pay. They are not qualified for getting paid in minimum wages, and are different to non-exempt employees.

What is an Exempt Employee?

An exempt employee is someone who is spared from receiving the minimum wage pay or the overtime pay. These employees fall under a special category for their distinctive roles and responsibilities. This exemption is usually found in the American labor laws and is called the Fair Labor Standards Act (FLSA). Most of the employees who work within the upper levels of any institution such as executive positions are known as exempt employees. Being an exempt employee is considered to be an advantage because it does not lessen the hours of the employees in a given time period for the salary earned.  The FLSA also categorizes the jobs of the exempt employees such as: professional, administrative, executive, outside sales and computer related jobs. These employees also receive year-end bonuses to repay for the kinds of work they do, including any overtime work.

Law Regarding Exempt Employee

As the exempt employees do not receive the protection from FLSA, they are not granted an overtime pay. There are jobs that are considered to be exempt under the law, which includes outside sales staff and airline workers. But, in order to be labeled as an exempt employee, he or she must meet the following three tests:

• They should earn an amount of $ 23,600 per year ( or $455 per week).
• They should be paid on a salary and not on a wage basis.
• They should perform job duties that are exempt.

The third test of the exemption of the employees depends on the work that an individual works. As the rule of a thumb, the exempt workers are expected to perform the tasks that are in higher ranks with respect to the institutions overall operations. The FLSA breaks down the ranks into three different categories: executive, professional and administrative.

What Are the Requirements of Being an Exempt Employee?

The requirements of being an exempt employee will be discussed below in terms of the three different categories that have been mentioned earlier.

Exempt Job Duties: Executive

An employee is spared from FLSA rules if he or she carries out the following responsibilities:

• Taking the charges of two or more other employees.
• The initial duty of the position is management.
• Provides an honest input of the status of the other employees (hiring, firing, etc.).

This verification is made on a regular basis, as each duty leaves a place for interpretation. As a rule of thumb, the employee who is an exempt executive is considered to be “the boss” of the other employees in the organization.

Exempt Job Duties: Professional

This category includes professions such as lawyers, physicians, teachers, architects, registered nurses and other employees that require an advanced level of training or education. These jobs are analytical jobs that require a special type of training and involve the use of judgment and preference. This exemption does not require any skillful trades, mechanical arts or other jobs that does not need any degree.

This exemption includes professions such as writers, journalists, musicians and actors. Nonetheless, these type of jobs needs imagination, talent and other skills to the employer.

Exempt Job Duties: Administrative

This exemption includes the employees whose main purpose is to play the supporting role in an organization such as human resource staff, public relations or payroll and accounting. As a rule of thumb, the administrative employees do not produce anything that their organization sells. However, they are at a much higher rank than those employees who perform their duties as simple clerks.

The FLSA defines the duties of the administrative employees as follows:

• any non-manual tasks, which is
• related directly to the management or the business operations related to the customers, and
• a primary element that involves the practices of judgment and preference regarding
• Any significant matters.

There are other occupations that are exempt that increases the confusion of the employers. There are additional federal, state and the FLSA laws regarding professions that are classified as exempt such as interns, independent contractors, temporary employees, volunteers, training workers and foreign workers that the employers should keep in account.

Example of an Exempt Employee

An example of an exempt employee occurs when an individual who works in outside sales and goes out to meet the customers. However, it is not applicable for employees who work inside, such as the employees in call centers. Although, they may earn a commission, they are applicable for overtime pays. Only the employees who go out of their organization are qualified as exempt employees.

Another example of an exempt employee is the fast-food managers who spend their 60% of their time in handling the employees’ issues, fixing the schedules of the employees, hiring and firing the employees and other managerial jobs. They spend the rest of their 40% in operating the cash registers and making the fast food items qualifies them as an exempt employee as long as they are meeting with their salary basis tests.

The Advantages and the Disadvantages of Exempt Employees

Advantages

• You do not have to pay overtime: When an exempt employee is hired, there is no tension of paying overtime to them. The salaries of the employees do not change due to the number of hours they work. The employees are paid on a monthly basis whether they work for more hours than expected or do not work at all.
• You can assume they are more experienced: The knowledge is an important business asset, and the exempt employees usually bring in more competence than the non-exempt employees. If an organization is looking out for highly skilled employees, then they should choose the exempt employees over the non-exempt ones.
• You can give them more responsibility: Exempt employees are reliable and can be given with more responsibilities, as they will not demand any extra payment for working overtime. They are the “backbones” of an organization and are likely to come during the most crucial time of an institution such as during conferences, business merging and seasonal meetings.

Disadvantages

• You might have to pay them more: Although an exempt employee may not demand an extra payment for working overtime, they may demand a higher amount of monthly payment because of their experiences and high skills. The monthly salary may extent to such an amount, than the payment of a non-exempt employee for their regular and overtime working hours together.
• You cannot deduct pay for hours not worked: An exempt employees needs to be paid for the number of hours that they have not worked. The employees may take their day off due to sickness, personal issues or for any vacation purposes, but the amount of their payment is fixed and cannot be deducted at any cost. On the other hand, a non-exempt employee is only paid for the number of hours or days they work in an organization.

How Many Hours does an Exempt Employee Work?

An exempt employee does not have any fixed number of hours or days of working, because the FLSA is not in control of their jobs. An employer may fix the working hours of their employees to 20 hours, 40 hours or 70 hours per week without changing the amount of payment of the employees.  Some employers ask their employees to keep a track of the number of hours they work per week. However, the workers will then be labeled as hourly employees, and the employees would then need to pay them just like the non-exempt employees for their excess hours of work time. According to the FLSA rules and employer can pay an exempt employee with additional payments such as bonuses with their regular payments, which will not affect the status of the exempt employees. However, if any employee takes a day off that is not for sickness or vacation, then the employers can reduce the time of vacation from the employee’s allocated vacation days. The employers may deduct the amount of salary of their employees when they take a personal leave, the employees first or last week of employment, sick leave if the employee is not applicable for the leave and the violation of the rules of the workplace. There are some exceptional situations of partial-day deductions such as family and medical leaves.

The Bottom Line

Being an exempt employee is beneficial as they receive festival bonuses and promotions with their monthly payments. The exempt employees also receive more than the hourly hours and receive additional facilities such as retirement pensions, healthcare plans, vacation and sick payments. On the other hand, the exempt employees are not paid if they work for the excess time period.

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References

• https://corporatefinanceinstitute.com/resources/careers/compensation/exempt-employee/
• https://www.zenefits.com/workest/whats-the-difference-between-an-exempt-and-non-exempt-employee/
• https://www.investopedia.com/terms/e/exempt-employee.asp
• https://www.findlaw.com/employment/wages-and-benefits/exempt-employees-vs-nonexempt-employees.html
• https://www.thebalancecareers.com/exempt-employees-1918120
• https://www.businessnewsdaily.com/15922-what-is-an-exempt-employee.html
• https://swartz-legal.com/what-are-the-maximum-hours-a-salaried-employee-can-work/
• https://bizfluent.com/info-8775247-long-keep-after-scheduled-shift.html
• https://www.shrm.org/hr-today/news/hr-magazine/spring2021/pages/requiring-work-schedules-for-exempt-employees.aspx