Executive Exemptions and the Fair Labor Standards Act (FLSA)

The Fair Labor Standards Act (FLSA) requires that employees be paid at an overtime rate for all time worked in a workweek over 40 hours.  Certain categories of jobs are exempt from the overtime requirements.  image The Executive Exemption, for example, provides an exemption from the overtime laws for employees who qualify as “executives.”  More specifically, an executive for purposes of the FLSA is an employee who:

  1. regularly supervises two or more other employees, and
  2. has management as the primary duty of the position, and
  3. has some genuine input into the job status of other employees (such as hiring, firing, promotions, or assignments); and
  4. is paid a salary of no less than $455 per week.

“Management” means just what you’d probably guess it to mean.  Managerial activities include:

  • interviewing, selecting, and training of employees;
  • setting and adjusting their rates of pay and hours of work;
  • directing the work of employees; maintaining production or sales records for use in supervision or control;
  • appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status; handling employee complaints and grievances;
  • disciplining employees; planning the work; determining the techniques to be used;
  • apportioning the work among the employees; determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold;
  • controlling the flow and distribution of materials or merchandise and supplies;
  • providing for the safety and security of the employees or the property;
  • planning and controlling the budget; and monitoring or implementing legal compliance measures. 

Also included, . . .

Under a special rule for business owners, an employee who owns at least a bona fide 20% equity interest of the organization, regardless of its formal legal structure (e.g., corporation, partnership, or other), and who is actively engaged in its management, also is considered a bona fide exempt executive.

Highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.

Not feeling so confident about your understanding of the FLSA? Our full-day FLSA seminar on November 14 might be exactly what you need to master the challenging world of wage-and-hour compliance.