What Is An Exempt Employee and How Does Exemption Affect Pay?

The criteria for exempt employees fall into two categories: 1) the employee’s salary, and 2) the duties the employee performs for the employer. To be exempt, the standards in both categories must be met. Regardless of salary, these exemptions apply to all “white collar” workers, while “blue collar” workers are not exempt.

Salary is the first factor to examine to determine whether an employee qualifies as exempt. For the standard exemption, the law requires that the employee must be paid a predetermined and fixed salary that cannot be reduced based on the quality or quantity of the employee’s work. For example, the employee cannot be considered exempt if his/her salary is calculated on an hourly basis, which can vary based on the number of hours the employee actually works in a given week or month, unless the employee receives a guaranteed salary that meets the required minimum. However, an employer is still permitted to deduct an exempt employee’s pay under certain circumstances for absences of one or more full days from work based on the employer’s compensation plan for lost time and/or for disciplinary reasons. 

The employee’s salary must also meet the minimum threshold set forth by the Department of Labor. Currently, that salary threshold is $23,660 but may be increasing to $47,476 per year based on the outcome of pending litigation over a rule proposed by the Obama Administration increasing that threshold, which was initially scheduled to go into effect on December 1, 2016. 

If an employee satisfies the salary criteria, the next step is to ascertain whether the employee’s duties qualify as exempt. The Department of Labor’s list of qualifying duties varies depending upon the employee’s classification. For example, an executive employee can be exempt if he or she manages the business or a department or subdivision of the business, regularly directs the work of at least two or more other full-time employees or their equivalent, and has the authority to hire or fire other employees.

An administrative employee can be exempt if his or her duties entail office or non-manual work which is directly related to the management or general business operations of the company or its customers, and the employee exercises discretion and independent judgment.

To qualify as an exempt professional, the employee’s work must require advanced knowledge in a field of science or learning acquired through specialized study or education, be mainly intellectual in nature, and require consistent exercise of discretion and judgment. The Department of Labor’s list of duties for each of the exempt categories can be found on their website at www.dol.gov. 

In addition to the standard exemption, there is also an exemption for highly compensated employees, which uses slightly different versions of the salary and duties tests. The minimum salary for “highly compensated” employees is currently $100,000, but may be increasing to $134,000 per year based on the outcome of pending litigation over a rule proposed by the Obama Administration increasing that threshold, which was initially scheduled to go into effect on December 1, 2016. Highly compensated employees must perform office or non-manual work and customarily and regularly perform at least one of the duties of an exempt executive, administrative, or professional employee.

Whether you are an employee or the owner of a business, it is important to ensure that you or your employees, respectively, are being paid properly and in accordance with all regulations and laws. If you need some help in this regard, you can find an employment lawyer by simply posting a short summary of your issue on www.legalserviceslink.com for free and letting the perfect attorney come to you.