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Should Employees Be Classified as Exempt or Non-Exempt?

By Bradley Hunt, Attorney

The Fair Labor Standards Act (FLSA) is administered by the Wage and Hour Division (WHD). The Act establishes standards for minimum wages, overtime pay, recordkeeping, and child labor. These standards affect more than 130 million workers, both full-time and part-time, in the private and public sectors.

The Act exempts some employees from its overtime pay and minimum wage provisions, and it also exempts certain employees from the overtime pay provisions only. However, many employers unknowingly misclassify their employees which can lead to costly legal expenses and significant penalties for non-compliance. Federal and State Departments of Labor aggressively pursue and enforce these violations and the best practice to avoid running afoul of the FLSA exempt or non-exempt requirements is to take a proactive approach and be sure that your employees are properly classified. For guidance or additional information you may want to visit the US Department of Labor website or consult with legal counsel for guidance on proper classification of your employees. Within this article you will find some general definitions and guidance for complying with these standards.

Employees commonly referred to as “executives,” “professionals,” and outside sales persons and certain administrative and computer employees are examples of employees exempt from the protections of Federal minimum wage and overtime pay requirements under the FLSA and the NC Wage and Hour Regulations. This type of employee typically must be paid on a salary basis with no reduction to their salary conditioned on the quality or quantity of work performed.

  • Executive: This classification of employees must manage the day to day operations of a business, department or subdivision within the company and be responsible for directing and/or supervising the work of at least two employees. This category of employees also must have the authority to hire, fire, and promote employees. An example falling under this category would include, but not be limited to Vice-Presidents, Directors, and Chief level staff member
  • Administrative: This classification of employees must exercise independent judgment and discretion when performing non-manual work directly related to business operations. An example of this type of category of employee would include office managers, insurance agents, and human resource professionals.
  • Professionals: This classification of employees must have obtained advanced knowledge in a specific field of study or learning through extensive course work or instruction such an upper level degree from a university, college, law or medical school such as lawyers, dentists, physicians, professors, accountants, etc. This would also include outside sales persons who work typically solely on a commission basis.
  • Computer Employees: This classification of employees must be employed as a computer systems analyst, computer programmer-designer, software engineer or other similar type work.

Non-exempt employees are usually paid on an hourly basis rather than a salary basis. However, a non-exempt employee may receive a salary and remain in the non-exempt classification if that employee’s job responsibilities and duties do not involve the exercise of independent discretion and judgment typically reserved for managerial positions. Employers are required to pay this classification of employees a certain hourly rate and a premium overtime work rate.

When changing the responsibilities for duties of employees, employers may be unknowingly changing the employee’s classification as exempt or non-exempt. So it is very important to reexamine an employee’s classification if their job responsibilities and duties are amended. Under FLSA, employers can be held liable for up to two years of back overtime pay. We strongly encourage you to seek legal advice from the employment law attorneys at Brinkley Walser in determining the proper classification of your employees under the Fair Labor and Standards Act.