On August 30, 2023, the US Department of Labor (DOL) finally released their long-awaited proposal for updating the FLSA. This includes increasing the minimum salary that an exempt employee must earn to avoid overtime eligibility to nearly $55,000 per year. There are many other key aspects of the DOL’s proposal, so stay tuned to MP as we will be offering content in a variety of formats as this story unfolds.  

But before we address any potential changes, let’s take a brief look at the current FLSA. 

A Brief Look at the FLSA 

For more than 80 years, the FLSA has been protecting the rights of workers by establishing certain basic labor standards including minimum wage, overtime pay, and child labor regulations. Unless otherwise exempt, the FLSA ensures that employees are paid time and a half whenever working more than 40 hours in a work week. The FLSA also dictates strict recordkeeping requirements to track hours worked and wages paid.  

Enforced by the US Department of Labor Wage and Hour Division (WHD) of the US Department of Labor,¹ the FLSA does not require employers to provide: 

• Time off for holidays 
• Vacations or sick leave 
• Meal periods or rest breaks 
• Premium pay for weekend or holiday work 
• Notice prior to termination or layoff  
• Pay raises or fringe benefits.  

It’s important to remember that while the FLSA does not require employers to provide the above-listed items, state and local laws may have additional requirements on these matters.  Employers must comply with state and local labor laws to ensure they’re meeting all relevant obligations related to employee compensation and benefits. Failure to comply with federal, state, and local labor laws can lead to severe legal consequences, including substantial monetary fines, jail time, and other penalties.  

Now, let’s talk about the FLSA Exemptions from Overtime Regulations for certain workers (also known as “White-Collar” exemptions).  

The FLSA and White-Collar Exemptions 

White-collar exemptions are the most common type of Overtime Exemptions, encompassing employees categorized as Executive, Administrative, Professional (Learned, Creative, Computer), Outside Sales, and Highly Compensated. 

But first, it’s important to note that white-collar exemptions do not apply to the following: 

• Manual laborers or “blue-collar” workers who perform work involving repetitive operations with their hands, physical skill, and energy. 
• Non-management employees in production, maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers and laborers.  
• Police, fire fighters, paramedics and other first responders. 

So, how do you determine if an employee is exempt? 

The 3-Prong Test for Determining if an Employee is Exempt 

• If they are paid at least $35,568 per year ($684 per week); 
• If they are paid on a salary basis; 
• If the work they perform falls under a certain exempt job category including (executive, administrative, professional, computer, outside sales, and highly compensated employees. 

Remember, most employees must meet all three tests to be considered exempt from overtime regulations.  

1. The salary level test. Generally, employees who are paid less than $35,568 per year are non exempt. Employees who earn more than $107,432 per year are almost always exempt. Remember that state and local wage laws, and hour laws may be different.  

2. The salary basis test. This is how the employee is paid. Typically, an employee is paid on a salary basis where they receive a guaranteed minimum amount of money for any work week in which they perform work. This means you can only deduct from an exempt employee’s pay based on the number of hours worked, with limited exception.  

3.  The duties test. Each exemption has specific duties that must be performed in order to be considered exempt from overtime pay. However, job titles or position descriptions are not all that useful to determine exempt status. In fact, the actual job tasks and how the job fits into the employer’s overall operation are what takes precedence.   

Note: Salary level and salary basis requirements do not apply to certain job positions, such as teachers, doctors, or lawyers. 

Determining an Employee Exemption  

Though we talk about the job categories found under white-collar exemptions in this post, we suggest you also refer to the DOL’s Wage and Hour Division Fact Sheet on Exempt Employees for more details.  

Administrative: To qualify as an Administrative exemption, 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. This includes the exercise of discretion and independent judgment with respect to matters of significance directly related to management or general business operations requirements, and the employee must perform work directly related to assisting with the running or the servicing of the business. 

Executive: To qualify as an Executive exemption, the employee’s primary duty must be managing the enterprise or managing a customarily recognized department or subdivision of the enterprise, customarily and regularly direct the work of at least two or more other full-time employees or their equivalent (does not include volunteers, employees of independent contractors, interns, trainees, other non-employees). The Executive must have authority to hire or fire other employees, or the Executive’s suggestions and recommendations are used with regard to the hiring, firing, advancement, promotion, or any other changes status.  

Learned Professional: To qualify as a Learned Professional exemption, the employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual and character, and which requires the consistent exercise of discretion and judgment. Advanced knowledge must be in a field of science or learning, and must be customarily acquired by a prolonged course of specialized intellectual instruction.  

Creative Professional: To qualify as a Creative Professional exemption, 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, and applies to the areas of writing, music, acting, and graphic arts. Under this exemption, individuals may also be paid on a fee basis, which is a lump sum for completing a single job—regardless of how many hours the individual has worked. However, to meet the salary level test for the exemption, the payment must be at least $684 each week if the employee works 40 hours in a recognized field of artistic or creative endeavor.  

Computer Professional: To qualify as a Computer Professional exemption, the employee must work as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field. The employee’s primary duty must consist of: 

• 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  
• a combination of the aforementioned duties, the performance of which requires the same level of skills. 

Under this exemption, employees may be compensated either on a salary, or fee basis at a rate not less than $684 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour.  

Outside Sales: To qualify as an Outside Salesperson exemption, the employee’s primary duty is that of making sales, and is one who customarily and regularly works outside of their employer’s place of business. Congress chose to exempt Outside Salespersons from the FLSA’s protections because such employees typically work independently from their employers.  

Again, it’s important to remember that compliance with federal labor laws is critical, but just as critical are meeting compliance with state and local regulations. 

If you have questions or concerns about your recordkeeping practices, employee designations, and means of compensation, please reach out to us. We can help you work towards ensuring compliance with FLSA white-collar exemptions.

To learn more about compliance with federal overtime regulations, be sure to read MP’s article, “Preparing for Upcoming FLSA Changes: Revisiting the FLSA, and the Importance of Complying with Overtime Regulations.”

Questions? Comments? Contact us today!  

MP: Wired for HR

MP connects the dots between business goals, HR strategy, and HR technology with a focus on results. We know that HR has a tremendous impact on your business—from employee engagement to performance optimization to risk mitigation—and ultimately your profitability. That’s why we offer more than just a comprehensive technology platform. We offer you the support and expertise of a team of dedicated HR experts to ensure that you are maximizing the value of your investment and focused on cultivating high performance.

Learn more about MP’s solution.