The Fair Labor Standards Act (FLSA) is a significant federal labor and employment law that guarantees covered workers certain employment protections, including a minimum wage, overtime pay, and child labor protections.
Under the FLSA, covered employees must be compensated for all time spent on their principal work activities. Employers can consider various exceptions and exemptions to avoid minimum-wage and overtime-pay obligations for some employees.
[Download our Minimum Wage and Overtime Compliance Checklist to determine whether employees are covered by FLSA requirements.]
Employees are covered by the minimum wage, overtime, and other protections of the FLSA if:
Generally, employment relationships exist when employees perform work for employers in exchange for compensation. The economic realities of the parties’ relationship generally determine the degree of a worker’s economic dependence on the employer, including these factors:
A true employment relationship doesn’t include independent contractors, interns, or volunteers.
Sometimes it can be difficult to determine whether an employer-employee relationship exists for FLSA purposes, but it’s critical to determine the relationship between a worker and employer to know if FLSA applies. Some individuals may be compensated, but for FSLA purposes aren’t considered to have an “employment relationship” and therefore aren’t entitled to FLSA protections. Misclassification of a worker can result in a liability for unpaid wages plus an equivalent amount of liquidated damages.
The FLSA creates exemptions to minimum wage and overtime provisions for white-collar employees as well as more specific exemptions in certain specialized industries:
Here, we’ll focus on the more generally applicable white-collar employee exemptions, including job duty and compensation requirements and exemption tests.
For purposes of the FLSA, executives, administrators, professionals, and outside salespersons are defined as “white-collar” employees. The white-collar exemptions are also referred to as the “EAP” (executive, administrative, and professional) exemptions.
White-collar employees are exempt from minimum wage and overtime provisions if they:
To be exempt, white-collar employees must have exempt work as a “primary duty,” meaning the principal, main, major, or most important duty that the employee performs. The determination of an employee’s primary duty must be based on all the facts in a particular case, but generally, an employee who spends more than 50% of their time on exempt work will generally satisfy the primary duty requirement. However, employees spending less than 50% of their time performing exempt work may still meet the primary duties test if other factors support such a conclusion.
Employees who perform a combination of exempt duties can qualify for the exemption. For example, employees who perform a combination of exempt administrative and exempt executive work qualify for exemption.
To qualify for most white-collar exemptions, professionals and administrative employees must be paid on either a salary or fee basis.
Employees are paid on a salary basis if they receive a predetermined amount of compensation each pay period that isn’t reduced for variations in the quantity and quality of their work. The U.S. Supreme Court has ruled that a worker who is paid a day rate with no guarantee on how many days per week they will be working and who isn’t guaranteed a weekly salary isn’t exempt from the overtime requirement.
As of Jan. 1, 2020, to qualify for the white-collar exemptions, an employee’s weekly salary must be at least $684, equivalent to $35,568 per year. Employers must pay overtime to executive, administrative, and professional employees who earn less than the required compensation regardless of the employee’s job duties and responsibilities.
Employees are on a fee basis if they are paid an agreed sum for a single job, regardless of the time required for its completion. The fee must be at a rate that would amount to at least $684 per week if the employee worked 40 hours.
The FLSA provides specific rules that employers must use to determine which employees are exempt. Download our Minimum Wage and Overtime Compliance Checklist to determine whether employees are covered by FLSA requirements.
Bona fide executive employees are exempt from FLSA provisions if they:
Generally, exempt executives make their own decisions regarding when to perform nonexempt duties and remain responsible for the success or failure of business operations under their supervision while they perform such tasks.
Administrative employees are exempt from FLSA protections if they:
Professional employees are exempt from FLSA requirements if they:
The category of professional employees will expand as knowledge is developed, academic training is broadened, and specialized degrees are offered in new and diverse fields. Currently, the regulations carve out special provisions for:
Computer systems analysts, computer programmers, software engineers, or other similarly skilled workers are eligible for FLSA professional exemption. Job titles aren’t the sole determinant of the applicability of the exemption.
Computer professionals are exempt from FLSA protections if they are compensated at a rate of at least $27.63 per hour and who meet any combination of the following job duties requiring the same skill level:
Computer professionals who don’t meet the exemption requirements may still be exempt under other provisions, such as those covering executive or administrative employees, if their job duties meet the requirements for one of those exemptions.
Employees who manufacture or repair computer hardware and related equipment aren’t included in this exemption. Employees whose work is highly dependent on, or facilitated by, the use of computers or computer software – for example, engineers, drafters, and others engaged in computer-aided design – are generally not eligible for the exemption, unless their primary duty involves systems analysis, programming, or another similarly skilled occupation.
To qualify for outside sales exemption, employees must:
The salary requirements for other white-collar exemptions aren’t applicable to the outside sales exemption.
Employees with total annual compensation of at least $107,432 are deemed exempt from FSLA provisions if they customarily and regularly perform any of the exempt duties or responsibilities of executive, administrative, or professional employees.
Total annual compensation includes:
An employee not employed for a full year may qualify for the exemption if the employee received a pro rata portion of the $107,432 minimum compensation, based on the number of weeks the employee works that year.
However, a worker who is paid a day rate and not a guaranteed salary isn’t exempt from the overtime requirement, even if that worker earns enough to normally qualify as a highly compensated employee.
As the economy diversifies, the traditional workplace continues to change. Although lawmakers have made strides to clarify the rules, ambiguity still exists even as federal and state governments are increasing labor and employment law enforcement measures to protect employees. A company, as well as its officers, can be convicted and fined for a willful violation of the FLSA – and damages for noncompliance can cost millions. Download our Minimum Wage and Overtime Compliance Checklist to determine whether employees are covered by FLSA requirements.
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