The Fair Labor Standards Act (FLSA)
The Fair Labor Standards Act (FLSA) requires that most covered employees in the United States be paid at least the federal minimum wage for all hours worked, with overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek.
However, § 13(a)(1) of the FLSA and associated Department of Labor regulations provide an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional, and outside sales employees. Section 13(a)(1), 13(a)(17), and associated regulations also exempt certain computer employees.
The designation “white collar employee” does not appear in the FLSA. However, the term is a recognized short-hand for this general class of exemptions.
The white collar category comprises the most broad exemptions to the FLSA and touches the whole spectrum of industry classifications. Virtually every employer covered by the FLSA faces the sometimes difficult task of deciding which, if any, workers will qualify for white collar exempt status.
To qualify for one of these exemptions, employees generally must meet certain tests regarding their job duties and compensation. Job titles alone do not determine exempt status, nor does the receipt of a particular salary. In order for an exemption to apply, an employee’s specific job duties and earnings must meet all of the applicable requirements. It is important to note that simply paying an employee a salary does not relieve an employer of minimum wage and overtime obligations to that employee. Unless they meet the criteria of a specific exemption, employees covered by FLSA protections who are paid a salary are still due overtime if they work more than 40 hours in a week.
This guide provides an overview of each of the white collar exemptions and describes the basic tests and requirements to qualify for them. The salary levels listed in this article apply beginning on January 1, 2020.
Three Tests
For an employer to claim an exemption for a particular employee, three tests generally need to be satisfied:
1. The Salary Basis Test: The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.
2. The Salary Level Test: The amount of salary paid must meet a specified minimum amount.
3. The Duties Test: The employee’s job duties must primarily involve those associated with exempt executive, administrative, professional, outside sales, or computer employees.
Salary Basis Test
Generally, for an employer to claim one of the white collar exemptions for an employee, that employee must be paid on a salary basis. The salary basis requirement does not apply to outside sales employees, teachers, and employees practicing law or medicine.
Being paid on a salary basis means an employee regularly receives a predetermined amount of money each pay period on a weekly, or less frequent, basis. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. Generally, an exempt employee must receive at least the required weekly salary amount (see Salary Level Test) for any week in which the employee performs any work, regardless of the number of days or hours worked. Exempt employees do not need to be paid for any workweek in which they perform no work.
Salary Level Test
To qualify as an exempt executive, administrative, or professional employee, an employee must be compensated on a salary basis at a rate of no less than $684 per week (or $455 per week if employed in the Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, or the U.S. Virgin Islands by employers other than the federal government, or $380 per week if employed in American Samoa by employers other than the federal government), exclusive of board, lodging or other facilities).
The required $684 per week may be translated into equivalent amounts for periods longer than one week. For example:
▪︎ $1,368 per biweekly pay period.
▪︎ $1,482 if paid semimonthly (twice each month).
▪︎ $2,964 per month.
However, the shortest period of payment that will meet this compensation requirement is one week.
Note that exempt computer employees may be paid at least $684 per week, or on an hourly basis of at least $27.63 an hour.
The salary level test does not apply to outside sales employees, teachers, and employees practicing law or medicine. Academic administrative employees may qualify for exemption either by satisfying the standard salary level test or, alternatively, being paid on a salary basis at a rate at least equal to the entrance salary for teachers in the educational establishment by which the employee is employed.
Duties Test
To qualify for any of the white-collar exemptions, employees must meet certain tests regarding their job duties. The regulations establish separate duties requirements for executive, administrative, professional, outside sales, and computer employees, respectively.
Most employees who are exempt under the white collar exemptions are subject to the duties test. Under the duties test, an employee’s primary duty must be that of an exempt executive, administrative, or professional employee.
Primary duty means the principal, main, major, or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.
The amount of time spent performing the specific duty can be a useful guide in determining whether such work is the primary duty of an employee. Thus, employees who spend more than 50 percent of their time performing a specific duty will generally satisfy the primary duty requirement.
Time alone, however, is not the sole test, and nothing requires that exempt employees spend more than 50 percent of their time performing a specific duty. Employees who do not spend more than 50 percent of their time performing their major or most important duty may nonetheless meet the primary duty requirement based on other factors:
● The relative importance of the major or most important duty as compared with other types of duties.
● The amount of time spent performing the major or most important duty.
● The employee’s relative freedom from direct supervision.
● The relationship between the employee’s salary and the wages paid to other employees for performance of similar work.
For example, managers in retail establishments who perform exempt executive duties such as supervising and directing the work of other employees, ordering merchandise, managing the budget and authorizing payment of bills may have management as their primary duty even if they spend more than 50 percent of the time performing nonexempt work such as running the cash register.
However, if a particular manager is closely supervised and earns little more than the nonexempt employees, such a manager generally would not satisfy the primary duty requirement.