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Exempt or Non-exempt? What’s a Person to Do?

hr best practices hr compliance hr essentials hr for small business hr leadership hr management team management Jun 28, 2021

When we pay employees, it’s not about hourly or salary.  The only viable determination of proper pay practice is whether an employee is exempt or non-exempt.  The evaluation of proper pay is focused on whether or not a position is entitled to overtime.  That’s right – the position, not the person. 

Many businesses equate salaried employees as those with “no overtime” but that’s not how the law works. A salary is merely a decision to pay an employee for a weekly agreed amount of pay.  If you do not pay for hours worked in excess of 40, or fewer in some states, the position must meet the qualifications of being exempt under the law. 

There are 5 very clear classifications of exempt employees. The list includes:

  • Executives/Manager – the leaders in your organization who direct the work of others. We think of the ability to hire and fire, but they must be spending a good amount of time in management. Those that are lead people for example and do the work alongside the team are often not considered exempt.
  • Administrative – Must have independent judgment and decision making. That means that every admin assistant is not exempt. Only those that have decision making authority, sign agreements and act as the face of the organization are examples meeting these criteria.
  • Professionals – They must have a job that REQUIRES prolonged study. Think accountants, engineers, lawyers…or be Creative Professionals – whose jobs require innovation, imagination or originality. Your accounts payable person is not exempt even if they have a CPA, the job itself does not require prolonged study.
  • Computer – those that primarily are responsible for the system analyst, programmer or engineer. Those on the help desk or hardware installation teams are typically not exempt.
  • Outside sales – must be engaged in sales OUTSIDE the normal place of work. This is not your telemarketing team or customer service people!

And note the reference to the position, not the person.  The qualifications of the exempt status are based on the defined essential functions of the job.  It is not relevant that the individual might have prolonged education or authority.  What is considered is the requirement needed to do the job.

The Department of Labor provides an excellent overview on exempt employees. Google DOL Fact Sheet 17A and share with your team!  We also provide a copy of this fact sheet in our HR Hacks toolkit.  Help your leadership understand this is not a decision to be made, there are specific criteria to be followed.  If the proper classification is not given, the penalties and back pay due add up quickly.

For more information on the proper classification of employees, consider our compliance course or purchasing the HR Hacks toolkit!  Visit HR University for more information.

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