FLSA Exemption Categories and Why They Matter

At the beginning of—and throughout—any employment relationship, an employer must “classify” employees as “exempt” or “nonexempt” under the Fair Labor Standards Act (“FLSA”).

While this may seem inconsequential, an employer’s classification of an employee as exempt or nonexempt is crucial in determining an employee’s rights to payment and an employer’s responsibilities as to payment and record-keeping. For example, under the FLSA, nonexempt employees are entitled to overtime wages whereas exempt employees are not. 

According to the FLSA, the proper classification of an employee as exempt or nonexempt depends on:

• How much the employee is paid
• How the employee is paid (salary or hourly) and
• What kind of work the employee primarily does

While many employees covered by the FLSA are nonexempt, and thus entitled to overtime pay, there are several exceptions or types of exemptions. In this article, we will discuss the three most commonly known and used FLSA exemptions and provide examples of common employer misclassifications under these exemption categories. 

Additionally, we will touch on other FLSA exemptions of which employees and employers should also be aware.

FLSA Exemptions Overview

As mentioned above, an employee’s classification as exempt or nonexempt under the FLSA depends on: (a) how much they are paid, (b) how they are paid (salary or hourly), and (c) what kind of work they primarily do.

There are three commonly known and used categories of exemptions under the FLSA: administrative, executive, and professional. Additionally, there are other exemptions under the FLSA for certain computer professionals, outside sales employees, and highly compensated employees, among others. 

Generally, to qualify for any of the above-mentioned exemptions, employees must meet certain standards regarding their job duties and be paid on a salary basis at not less than $684 per week. As of January 1, 2020, the minimum salary for most of the exemptions has been raised to $35,568, or $684 per week. These numbers may change in the future.

Importantly, job titles and job descriptions do not determine an employee’s exempt status under the FLSA. In order for an exemption to apply, an employee’s primary job duties and salary must meet all requirements for the applicable exemption category, as discussed in further detail below.

Administrative Exemption

One of the most commonly used (and misused) FLSA exemptions is the “administrative exemption.”

The administrative exemption applies to employees who are (currently) paid on a salary basis at not less than $684 per week (or $35,568 per year) and whose primary duties include:

• Performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers and
• Exercising discretion and independent judgment with respect to matters of significance
  

While the administrative exemption is commonly used, it is also the most commonly misapplied.

Under the FLSA, work that directly relates to the management or general business operations means work directly related to assisting with the running or servicing of the business, as distinguished for example, from working on a manufacturing production line or selling a product in a retail establishment.

Work that directly relates to management or general business operations may include work in the following areas:

• Tax
• Finance
• Accounting
• Insurance
• Quality control
• Purchasing
• Procurement
• Advertising
• Marketing
• Research
• Health and safety
• Human resources
• Employee benefits
• Labor relations
• Public and government relations
• Legal and regulatory compliance

Additionally, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct and acting or making a decision on behalf of the business after various possibilities have been considered. The exercise of discretion and independent judgment means that the employee has the authority to make an independent choice, free from immediate direction or supervision. The fact that an employee’s decisions are revised or reversed after review does not mean that the employee is not exercising discretion and independent judgment.

As to “matters of significance,” the term refers to the level of importance or consequence of the work performed. An employee does not exercise discretion and independent judgment with respect to matters of significance merely because the employer will experience financial losses if the employee fails to perform the job properly.

Misclassification Example

An employer hires an “executive assistant” and pays the assistant an annual salary of $70,000. The employer classifies the executive assistant as an exempt employee under the FLSA administrative exemption.

However, the executive assistant performs only clerical office work, such as filing, filling out forms, preparing routine office reports, answering telephones, ordering supplies, and making travel arrangements. None of these duties relate to the management or general business operations of the employer or the employer’s customers, and none of these duties require the exercise of discretion and independent judgment with respect to significant business matters.

Therefore, the executive assistant should likely be classified as a nonexempt employee, and thus would be entitled to be paid overtime for hours worked in excess of 40 hours per week.

Executive Exemption

Another common exemption under the FLSA is the “executive exemption.” To qualify as exempt from overtime pay under this exemption, an employee must (currently) earn at least $684 per week (or $35,568 per year) and perform the primary job duty of managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise.

Additionally, the employee must customarily and regularly direct the work of at least two other full-time employees and have the authority to hire, promote, or fire other employees (or whose opinion as to hiring, promotion, or firing is given particular weight).

Assuming the salary test is met, if an employee’s main duties are the management of at least two full-time employees, and the employee can influence who gets hired, promoted, and fired, the employee may qualify as exempt under the FLSA executive exemption. 

Generally, “management” duties include activities such as:

• Interviewing, selecting, and training of employees
• Setting and adjusting their rates of pay and hours of work
• Directing the work of employees
• Maintaining production or sales records for use in supervision or control
• Appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status
• Handling employee complaints and grievances
• Disciplining employees
• Planning the work
• Determining the techniques to be used
• Apportioning the work among the employees
• Determining the type of materials, supplies, machinery, equipment, or tools to be used or merchandise to be bought, stocked and sold
• Controlling the flow and distribution of materials or merchandise and supplies
• Providing for the safety and security of the employees or the property
• Planning and controlling the budget
• Monitoring or implementing legal compliance measures

Misclassification Example

A retail employer hires an “assistant store manager” and pays the assistant store manager a yearly salary of $50,000. The employer classifies the assistant store manager as an exempt employee under the FLSA executive exemption.

While the assistant store manager spends some time overseeing and coaching other store employees, the assistant store manager spends the majority of her time working at the cash register and replacing and tidying merchandise on the retail sale floor. Additionally, she has no authority to hire, promote, or fire any other store employee.

The assistant store manager technically “manages” other employees, but most of her time is spent performing nonexempt duties and she has no authority or influence to hire, promote, or fire other employees. Therefore, the assistant store manager should likely be classified as a nonexempt employee, and therefore meets overtime pay requirements.

Professional Exemption

There are two types of “professional exemptions” under the FLSA: (1) the “learned professional exemption” and (2) the “creative professional exemption.” Both types of professional exemption require that the employee earn at least $684 per week (or $35,568 per year) and primarily perform certain types of work, as discussed below.

For the “learned professional exemption,” the employee must primarily perform work that requires “advanced knowledge,” defined as work that is intellectual in nature and requires consistent exercise of discretion and judgment. The employee’s area of advanced knowledge or expertise must be in a field of science or learning, which must be acquired from a prolonged course of specialized study.

The following professional fields commonly qualify under the FLSA professional exemption:

• Law
• Medicine
• Theology
• Accounting
• Actuarial computation
• Engineering
• Architecture
• Teaching
• Various types of physical, chemical and biological sciences
• Pharmaceutical

For the “creative professional exemption” to apply, the employee must primarily perform work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. The creative professional exemption applies to fields such as music, writing, acting, and graphic arts. 

Misclassification Example

A private school hires a “teacher’s aide” and pays the teacher’s aide a yearly salary of $45,000. The school classifies the teacher’s aide as an exempt employee under the FLSA professional exemption. However, the aide’s job duties primarily consist of assisting elementary teachers in preparing for class lessons, printing classroom assignments, completing class records, and preparing the classroom for lessons.

The teacher’s aide has an undergraduate degree in education, but no advanced degree or additional specialized training. Although the teacher’s aide has some education in her field, the teacher’s aide’s undergraduate degree may not qualify as a prolonged course of specialized study under the FLSA. More importantly, the aide’s actual job duties are assigned by the teacher and do not require the teacher’s aide to use independent discretion or judgment.

Accordingly, the teacher’s aide should likely be properly classified as a nonexempt employee, and would therefore be entitled to overtime wages for hours worked in excess of 40 hours per week.