What is an exempt employee? Is the definition changing?
The federal law that establishes minimum wage, overtime pay rules and child labor standards is the Fair Labor Standards Act (FLSA). Primarily pertaining to full-time employees, its provisions also cover part-time workers. The law affects both private sector and government workers.
Most job categories fall under the provisions of the FLSA. Notable exceptions include the following:
Agricultural workers
Railroad employees
Theater workers
Truck drivers
Any other workers whose jobs are governed by other labor laws
The jobs that are covered by the FLSA fall into one of two categories, "exempt" and "non-exempt." Non-exempt employees are generally those making less than $455 a week. Non-exempt workers qualify for overtime pay for each hour worked over 40 in a typical work week.
Exempt jobs are more difficult to define. How much an employee is paid, how they are paid and the type of work they do all play a part in the determination. First, they must be paid more than $455 per week. Their rate of pay must not fluctuate according to work level, even if they are required to work more than 40 hours weekly. Finally, a portion of their work (the percentages are somewhat subjective) must include supervision, management or record-keeping.
Exempt employees must fall into one of three categories: administrative, executive or professional.
Administrative. This exemption is for office work directly related to management or business administration. The work may or may not require special training or knowledge.
Executive. This includes employees whose primary duty is management. Positions in this category must directly supervise at least two full-time employees and be empowered to make employment and disciplinary decisions.
Professional. The third exemption requires an advanced degree and the work must be original or creative in nature.
Each of the exempt categories also require that the employee spend at least 50 percent of his or her time exercising independent judgement that could result in decision-making.
Radical changes may be coming in 2016 for jobs covered by the FLSA. In July 2015 the Department of Labor announced its intent to raise the weekly salary distinguisher from $455 per week to $970, more than doubling the standard. Many employees now classified as exempt would become non-exempt under that change.
Aside from the personal stigma possibly associated with going from an exempt to a non-exempt status, the change would in many ways be beneficial for those presently exempt. For instance, hours worked in excess of 40 might then qualify for overtime pay, significantly increasing income for many. For others it could mean a reduction in the number of hours worked per week, another benefit.
For employers, the change could prove problematic at best. An exempt employee making $900 per week and routinely working 50 hours, for example, could increase the payroll by $112.50 each week, or almost $6,000 annually. Many companies' margins are such that a change of this magnitude would be devastating to the bottom line.
Whether or not the proposed rule changes are placed into effect, most employers are already in the process of creating workarounds or other strategies to accommodate them. To ignore them or to simply hope for a better solution is not the path to successful implementation.
