Human Resource Tips
Exempt Vs. Non-Exempt
Many employers refer to their employees as ‘hourly’ or ‘salary’. This is fine so long as employers also understand rules for paying employees as set forth in the Fair Labor Standards Act as well as any applicable state laws.
There are certain requirements that must be met in order for an employer to classify an employee as Exempt, which means that the employee is not entitled to overtime pay. It doesn’t matter what title the employee holds, it only matters what duties that employee performs and also what salary that employee earns, in most cases at least $455.00 per week.
There are different types of exemptions allowed including executive, professional, administrative, commissioned sales, outside sales, and highly compensated computer professional. Each classification requires that certain criteria are met. For example:
In order to be classified as a professional, the individual must have attained his or her knowledge for the profession through prolonged higher learning (usually a degreed program) AND must do the work of his or her profession. Someone who has a degree in Accounting would only be considered ‘exempt’ if working as a CPA, CFO or controller. Working as a bookkeeper or a/p a/r clerk would not qualify for exemption.
An administrative exemption means the employee does non-manual office work directly related to management’s policies or the general business operations of the company or company’s customers, and the primary duty must be to exercise discretion and independent judgment on matters of significance on a regular basis. The key here is ‘matters of significance’. Simply ordering supplies would not be considered ‘matters of significance’ while negotiating and having the authority to buy new real estate would.
To be considered exempt under the Executive heading, the employee must manage a department and direct the work of at least 2 full time employees. In addition, the employee must have the authority to hire and fire or the opinions of the employee must carry weight in the decisions to hire or fire.
Once you have determined that an employee qualifies for an exemption under the Fair Labor Standards Act, additional rules apply. Employers cannot dock an exempt employees pay for less than a full day with one exception. If an exempt employee works for even a couple of minutes then goes home, that employee must receive his or her pay for the entire day. The exception is intermittent leave under Family and Medical Leave.
Second, in order for an employer to dock an exempt employee who is out due to illness, that employee must have exhausted any sick leave available to him under the company’s ‘bona fide’ sick time bank. In simple terms, if your company does not offer any paid sick time pay to your exempt employees, you must pay that employee for all sick time taken. On the other hand, if you offer paid sick time, once it has been used up, you are free to dock the employee’s pay in full-day increments.
Classifying and paying employees properly can be complicated. If not done correctly, it can also be costly later on.