August 9, 2024

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The Fair Labor Standards Act

The Fair Labor Standards Act is a federal law requiring that employees be compensated at least the minimum wage of $7.25 per hour worked and that employees receive overtime pay of at least 1.5x their normal hourly pay if they work more than forty hours in any given week.¹

There are six categories of employees who are exempt from these requirements. For any employees that fall into at least one of these categories, their employers do not have to pay them minimum wage or overtime pay.  

The six exemptions are titled as follows:  

1. the executive exemption,  

2. the administrative exemption,  

3. the professional exemption,  

4. the computer employee exemption,  

5. the outside sales exemption, and  

6. the highly-compensated employee exemption.  

Below is a list of the components of each of the six exemptions. ²  

Executive Exemption

• The employee must receive a salary of at least $684/week (gross, before taxes).

• Nondiscretionary bonuses and commission may be used to satisfy up to 10% of the $684.

• A bonus is non-discretionary if the employer does not get to decide if it will make the payment or how much it will pay.  

• The employee’s primary duty must be managing the enterprise or a subdivision thereof.

• The employee must direct the work of at least two others.

• The employee must have authority to hire or fire others, or the employee’s opinion on such should carry significant weight.

• Examples of roles that typically qualify for the executive exemption include an organization’s CEO, CFO, or COO.

Administrative Exemption

• The employee must receive a salary of at least $684/week (gross, before taxes).

• Nondiscretionary bonuses and commission may be used to satisfy up to 10% of the $684.

• The employee’s job must primarily be non-manual and directly related to general business operations: essentially, the employee’s job must be more mental than physical.

• The employee’s primary duties must include the exercise of discretion and independent judgment on significant matters.

• Examples of roles that typically qualify for the executive exemption include an organization’s treasurer or secretary.

Professional Exemption

There are two categories of employees that fall under this exemption.

1. Learned professionals 

• The employee must receive a salary of at least $684/week (gross, before taxes).

• Nondiscretionary bonuses and commission may be used to satisfy up to 10% of the $684.

• The employee’s primary duty must be performance of work requiring “advanced knowledge” (predominantly intellectual in character and requiring consistent discretion and judgment).

• The employee’s advanced knowledge must be in the field of science or learning.

• The employee’s advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction. 

• Examples of roles that typically qualify for this professional exemption include engineers, doctors, dentists, and lawyers.

2. Creative professionals

• The employee must receive a salary of at least $684/week (gross, before taxes).

• The employee’s primary duty must be the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

• Examples of roles that typically qualify for this professional exemption include marketing professionals and artists.

Computer Employee Exemption

• The employee must receive a salary of at least $684/week (gross, before taxes) or at least $27.63/hour (gross, before taxes).

• Nondiscretionary bonuses and commission may be used to satisfy up to 10% of the $684 or the $27.63/hour.

• The employee must be employed as a computer systems analyst, computer programmer, software engineer, or something similar.

• The employee’s primary duty must consist of:

• The application of systems analysis techniques and procedures, consulting with users to determine functional specifications, or

• Design, development, documentation, analysis, creation, testing, and/or modification of computer systems or programs.

Outside Sales Exemption

• The employee’s primary duty must be making sales or obtaining orders/contracts for services/facilities.

• The employee must be regularly working away from the office.

• “An outside sales employee must be customarily and regularly engaged ‘away from the employer's place or places of business.’ The outside sales employee is an employee who makes sales at the customer's place of business or, if selling door-to-door, at the customer's home. Outside sales does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls. Thus, any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer's places of business, even though the employer is not in any formal sense the owner or tenant of the property. However, an outside sales employee does not lose the exemption by displaying samples in hotel sample rooms during trips from city to city; these sample rooms should not be considered as the employer's places of business. Similarly, an outside sales employee does not lose the exemption by displaying the employer's products at a trade show. If selling actually occurs, rather than just sales promotion, trade shows of short duration (i.e., one or two weeks) should not be considered as the employer's place of business.”³

Highly-Compensated Employee Exemption

• The employee must perform office or non-manual (mental) work.

• The employee must be paid total annual compensation of at least $107,432 (gross, before taxes).

• Nondiscretionary bonuses and commission may be used to satisfy up to 10% of the $107,432.

• The $107,432 must include at least $684 per week paid on a salary or fee basis.

• The employee must regularly perform at least one of the duties of an exempt executive, administrative, or professional employee (see the description of these categories above).

• An example of a role that typically qualifies for this professional exemption includes a COO who does not manage at least two people, but makes at least $107,432/year and $684/week.

What Does All this Mean for Your Organization?

All employees who do not meet at least one of these six exemptions are nonexempt. Nonexempt employees are entitled to at least $7.25 per hour worked, and 1.5x their normal pay for any time worked beyond forty hours in any given week. (Again, state law requirements can vary and must also be followed.)  Thus, misclassifying the employee as exempt takes away these entitlements from the employee. If you mislabel an employee as exempt when they do not fully meet any of the six exemptions, your organization could be liable for unpaid overtime and/or wages.  

For any overtime worked or any time worked where the employee did not receive at least $7.25 per hour, the employee can file for back pay with the U.S. Department of Labor. Since the Fair Labor Standards Act was implemented to protect employees, the employee is likely to prevail unless the employer can prove that the employee did not work overtime or did receive at least $7.25 per hour. Because there may be disputes regarding time worked and pay received, it is important for your organization to keep records for each employee, such as making the employee clock in and out, keeping records of the punches, and retaining old paystubs.

When an employee brings a claim for overtime pay, if the employer has not kept accurate records of the employee’s hours, then the employee’s statement as to the hours he worked will generally be accepted.⁴  In light of this, it is critical that your organization classify employees correctly and retain records of hours worked to avoid any potential headaches emanating from the exempt vs. nonexempt distinction.  

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¹ “Wages and the Fair labor Standards Act.” U.S. Department of Labor, Wage and Hour Division, https://www.dol.gov/agencies/whd/flsa; The minimum wage and overtime rate varies by state. $7.25 and 1.5x pay after 40 hours is a floor set by federal law. State legislatures and agencies are able to set higher minimum wages, higher overtime rates, and lower the 40 hour benchmark for when overtime pay becomes effective. States can also set daily working limits (example: overtime kicks in if employee works more than eight hours in any one day). See “Overtime Laws by State – Guide for 2024.” Clockify, https://clockify.me/learn/business-management/overtime-laws/

² “Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA).” U.S. Department of Labor, Wage and Hour Division, https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime

³ 29 CFR § 541.502

⁴Anderson et al. v. MT. Clemens Pottery Co., 328 U.S. 680 (1946).