Classifying Employees For Wages

As a general proposition, employers are required by federal law to pay their employees overtime, usually one and one half times the hourly pay, for time in excess of 40 hours in a work week. They are also required to pay the minimum wage.

The first four groups of employees that are "exempt" from having these rights are executive, administrative, and professional personnel and outside salespersons. For any of the first three exemptions, collectively called the "white collar exemptions," to apply, the employee must receive, on a salaried basis, at least $455 per week or its equivalent.

Another commonly invoked exemption is for skilled computer operators who are compensated at a rate of not less than $27.63 per hour. The following is an overview of these exemptions, but be forewarned that pertinent regulations contain many exceptions and qualifications that must be consulted before an employer can be assured of having complied with applicable federal law.

Exempt Groups of Employees

To be an exempt "executive," the employee (1) must have, as a primary duty, management of the enterprise or of a customarily recognized department or division of the enterprise; (2) must customarily and regularly direct at least two employees; and (3) must have hire and fire authority as to other employees, or at least be someone whose suggestions and recommendations as to such matters are given particular weight.

An exempt "administrative" employee is one whose primary duty is the performance of office or nonmanual work directly related to the management or general business operations of the employer or its customers, and whose primary duty includes the exercise of discretion and judgment with respect to significant matters. Discretion and judgment are distinguished from skill. For example, clerical workers are typically not exempt as administrative workers. As you might expect, "matters of significance" is a highly elastic concept, but just a few of the many illustrative examples are accounting, quality control, employee benefits, and legal and regulatory compliance.

The "professional" exemption can apply to individuals in any of four groups: learned professionals, who do work in a field requiring advanced knowledge customarily acquired by a prolonged course of specialized intellectual instruction; creative professionals, whose work requires invention, imagination, originality, or talent in a recognized artistic or creative field; teachers, including preschool and trade school teachers, athletic coaches, and advisors for school activities; and doctors and lawyers holding licenses or certifications.

The specialized exemption for "computer employees" comes into play when an employee has primary duties consisting of the application of computer systems analysis techniques and procedures, or the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs.

The exempt "outside salesperson" is generally an employee whose main duty is making sales or obtaining orders or contracts for services or for the use of facilities, and who is customarily and regularly employed away from the employer's place of business.

Navigating the detailed federal requirements for the exemptions from overtime and minimum wage requirements is a complex business, and the consequences for violating the Fair Labor Standards Act, from which they emanate, can consume lots of time and money. The stakes for getting this right may be even higher now, in light of an announcement by the Department of Labor that it plans to give increased attention to the problem of misclassification of employees.

The extensive, sometimes highly specific federal requirements for the wage and hour exemptions, not to mention their state law counterparts, are best analyzed and applied by employers in consultation with experienced legal advisors or human resource professionals.

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