Exempt Employee: What Does That Mean?

Typically, an exempt employee falls into one of four categories. Those categories are the owner, an executive, administrative, and professional. The term exempt means that employees that fall into one of these four categories are not subject to the wage and hour laws within the state laws or the Federal Fair Labor Standards Act (FLSA), The most common application of the FLSA involves overtime. They require businesses pay overtime to non-exempt (non-management) employees who work over forty hours in a week, provided they are not under any other contractual agreement. An example of an agreement that may require something different would be a collective bargaining agreement.

Exempt Employee

If You Don’t Properly Categorize An Exempt Employee Correctly It Could Cost You A Lot Of Money!

Let's talk again about what would make an individual fall into the category of being classified as an exempt employee. In the second example above, we mentioned if someone was an executive, they would most likely be considered exempt. Here is a simple test to make that determination. Does the employee have the authority to hire, fire, set policy, promote, manages a certain number of full or part time employees, or other decisions that can have a direct impact on the financial condition of the business. Understand that these are just a guideline and should be confirmed by a labor law attorney. Once determined I would include them in your employee handbook so there is no question about who is exempt and who is non-exempt.

In the third example above of someone that may be considered an exempt employee would be an administrative employee. This would be someone who performs specialize or technical office work or work that is considered not manual. The work would be for such things as producing management policies or general company business operation rules of the organization. Any decisions that this individual would make have a substantial impact on the company or business. Their work would help to support the entire business and not just a single customer or client. They would be called upon daily to make independent decisions that require judgment and discretion. Typically, some positions that would fall into this category would be Vice President or a Department Head.

The final example above of someone that may be considered an exempt employee would be someone designated as a professional. This is someone that would normally require advance skills or knowledge through a lengthy training or academic study program. The type of work that a professional exempt employee would perform can't be standardized to a set pattern or product. Examples of individuals that may be considered professional would be physicians, attorneys, CPA's, engineers, architects, scientists, and some teachers. This list is not all inclusive and should be reviewed by your labor law attorney. There are some online labor law organizations that can also be less expensive and deliver great help.

In order to have a better understanding of this I would strongly recommend that you do some research on the Fair Labor Standards Act. I would simply plug that title into Google and see what you come up with. The problem with assuming that someone is an exempt employee and then find out later that they are not could end up costing you your entire business in fines and paying back overtime wages. Once you have one person that is wrongly categorized, they will investigate everyone and make a determination on them. Anyone found to be not an exempt employee will mean that you will have to go back and make them whole on overtime.

Thank you and may God bless you.