Understanding the White-Collar Exemptions Under the FLSA

The federal Fair Labor Standards Act (FLSA) became effective on October 24, 1938, creating a federal minimum wage, maximum workweek limits, overtime pay, and child labor restrictions. It also established the core “white-collar” exemptions for bona fide executive, administrative, professional, and outside sales employees. Subsequently, in 1990, Congress defined the computer professional exemption, codified in 1996, which treats computer employees as professionals. Today, there are dozens of exemptions under the FLSA; however, the white-collar exemptions are the most commonly used by employers.

The term “exemption” refers to a position that meets the various requirements set out in the FLSA to remove it from being covered by one or both of the minimum wage and overtime requirements under the law. To meet the required standards to qualify as a “bona fide executive, administrative, or professional the job must meet certain requirements:

1. The position must be paid on a salary basis (a predetermined, fixed compensation amount paid each week), not subject to reduction because of variations in the quantity or quality of work performed, or the number of days or hours worked. The employee must receive their full salary for any week they perform any work.
2. The weekly salary paid must meet the minimum threshold established by the Department of Labor.
3. The position must meet the “duties test” associated with one or more of the exemption categories. The duties test focuses on the “primary duty” of the position – at its core – why does the position exist?

The Duties Test

Determining if the position meets the requirements of the duties test requires an in-depth analysis of the requirements, duties, and responsibilities of the position. A “short test” of the duties can aid in determining if the position is not exempt. If the position passes this short test, further analysis should be conducted to confirm that an exemption is warranted.

Requirements under the short test for each of the three common exemptions include:

• Executive Exemption
  If the position does not meet all the requirements, it does not meet the requirements of an executive exemption:
   
  • Is the position primarily engaged in the management of the organization or a subdivision?
  • Is the position responsible for at least two full-time employees (or part-time equivalent hours)?
  • Does the position have the authority to hire or fire other employees, or have significant input and the authority to make recommendations related to the hiring, firing, advancement, promotion, or any other change of status for employees?
• Administrative Exemption
  To qualify for the administrative employee exemption, the employer must ensure all the following requirements are met:
   
  • 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.
• Professional Exemption
  The duties test for the professional exemption falls into two distinct categories: the learned professional exemption and the creative professional exemption. Consistent with the other exemptions, the position must meet the full list of duties tests to potentially be considered exempt:
   
  • Learned Professional
    • 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 Professional
    • 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.

Computer Professional and Outside Sales Exemptions

The salary and overtime requirements of the other white-collar exemptions differ from those of the computer professional and outside sales exemptions. However, each has its own requirements.

• Computer Professional
  • The employee may be paid on a salary basis, which must meet the minimum requirements of the FLSA, or they may be paid on an hourly basis at a rate not less than $27.63 per hour. This rate is paid for all hours worked; no overtime premium is required for hours over forty in a workweek.
  • The employee must be employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field performing the duties described below;
  • The employee's primary duty must 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 aforementioned duties, the performance of which requires the same level of skills.
  • The computer employee exemption does not include employees engaged in the manufacture or repair of computer hardware and related equipment.
  • Employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs (e.g., engineers, drafters, and others skilled in computer-aided design software), but who are not primarily engaged in computer systems analysis and programming or other similarly skilled computer-related occupations identified in the primary duties test described above, are also not exempt under the computer employee exemption.
• Outside Sales Exemption
  The salary requirements of the FLSA do not apply to the outside sales exemption. The position must meet all the following requirements:
  • The employee's primary duty must be making sales, or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
  • The employee must be customarily and regularly engaged away from the employer's place or places of business.

State laws may not be consistent with the FLSA. Where a difference exists, the law most beneficial to the employee will generally be enforced. For example, Wisconsin’s duties requirements, while similar to the FLSA, do not recognize the “primary duty” test, but rather depend on specific percentages of time spent engaging in certain responsibilities. Employers should check state laws where they have employees to ensure their analysis meets the applicable requirements.

Failing to accurately assess a position's exemption status can prove expensive if the job is determined by either the state or federal Department of Labor not to meet the requirements. Penalties include back wages, liquidated damages, civil damages, and potentially criminal liability. Taking the time and effort to accurately document the requirements, duties, and responsibilities will serve companies well.

MRA’s Hotline Team can help you with the basics of determining a position’s status. However, for a “deep dive,” our Compensation Team is here to assist. Please contact your Member Relations Manager to discuss next steps.

Additional MRA Resources

FLSA Exemption Rules Toolkit

Determining Exemption Status under the FLSA Flowchart

The Basics of Exempt Status

When is Docking an Exempt Employee’s Salary Allowed?

DOL Fact Sheets

#17A Exemption for Executive, Administrative, Professional, Computer, and Outside Sales

#17B Exemption for Executive Employees Under the Fair Labor Standards Act

#17C Exemption for Administrative Employees Under the Fair Labor Standards Act (FLSA)

#17D Exemption for Professional Employees Under the Fair Labor Standards Act (FLSA)

#17E Exemption for Employees in Computer-Related Occupations Under the Fair Labor Standards Act (FLSA)

#17F Exemption for Outside Sales Employees Under the Fair Labor Standards Act (FLSA)

Wisconsin Department of Workforce Development

Hours of Work and Overtime FAQs