Today I am going to outline the differences between exempt and non-exempt employees under the Fair Labor Standards Act. Knowing these differences will help you correctly classify and fairly compensate your workers while complying with federal law.
The FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments. All employees are non-exempt and are subject to FLSA regulations unless they fall under a specific set of exempt categories. Don’t stop at the well-known general rule that says hourly employees are non-exempt and salaried employees are exempt. Instead of guessing and possibly making costly mistakes, get to know the rules ahead of time and avoid inquiries from the IRS on this subject. Understanding the exempt categories can save you a lot of time and trouble!
With few exceptions, to be exempt an employee must be paid at least $23,600 per year ($455 per week), and be paid on a salary basis, and also perform exempt job duties. Employees are usually non-exempt unless they fall into one of these categories:
Salary level: Employees who are paid less than $23,600 per year ($455 per week) are nonexempt, while employees who earn more than $100,000 per year are almost certainly exempt.
Administrative employees: Administrative employees must make at least $455 per 40-hour work week. Their work must be office or non-manual work, must be directly related to management or general business operations of the employer or the employer’s customers, and also must primarily involve independent judgment and discretion about significant matters.
Executive employees: Executive employees must make at least $455 per 40-hour work week. They must regularly supervise two or more other employees, have some genuine input into the job status of other employees (such as hiring, firing, promotions, or assignments), and also must have management as the primary duty of the position. According to FLSA.com, typical management duties include: interviewing, selecting, and training employees; setting rates of pay and hours of work; maintaining production or sales records (beyond the merely clerical); appraising productivity; handling employee grievances or complaints, or disciplining employees; determining work techniques; planning the work; apportioning work among employees; determining the types of equipment to be used in performing work, or materials needed; planning budgets for work; monitoring work for legal or regulatory compliance; providing for safety and security of the workplace.
Computer Employees: Computer employees must make at least $455 per 40-hour work week or be paid at least $27.63 per hour. They must apply system analysis techniques and procedures including consulting with users to determine hardware, software, or system functional specifications and design, development, documentation, analysis, creation, testing, or modification of computer systems or programs.
Exempt Professionals: The traditional “learned professions” are generally exempt. These include lawyers, doctors, dentists, teachers, architects, and clergy. Also included are registered nurses (but not LPNs), accountants (but not bookkeepers), engineers who have engineering degrees or the equivalent and perform work of the sort usually performed by licensed professional engineers, actuaries, scientists (but not technicians), pharmacists, and other employees who perform work requiring “advanced knowledge” similar to that historically associated with the traditional learned professions.
Professionally exempt work must be predominantly intellectual, require specialized education, and involve the exercise of discretion and judgment. Professionally exempt workers must have education beyond high school (and usually beyond college) in fields that are more “academic” than the mechanical arts or skilled trades. Advanced degrees are the most common measure of this, but are not absolutely necessary if an employee has attained a similar level of advanced education and performs essentially the same kind of work as similar employees who do have advanced degrees.
Creative professionals: This includes actors, musicians, composers, writers, cartoonists and some journalists. It is meant to include employees who contribute a unique interpretation or analysis in jobs whose work requires invention, imagination, originality or talent. Sometimes identifying professionally exempt jobs is not as straightforward as some of the other categories. For example, determining the status of jobs like commercial artists and journalists requires additional analysis of exactly what the employee does.
Still confused as to whether you or your employee falls under exempt or non-exempt? Read more at http://www.flsa.com/index.html, or http://www.cpapracticeadvisor.com/blog/11173480/payroll-the-difference-between-exempt-non-exempt-employees?utm_source=CPA+Payroll+Advisor&utm_medium=email&utm_campaign=CCSN130914002
