Under the Fair Labor Standards Act (FLSA), most employees in the United States must be paid at least the federal minimum wage for all hours worked and must be paid overtime (one-and-a-half times the employee’s regular rate) for all hours worked in excess of 40 in a workweek. (For more on federal overtime rules, see Overtime Pay and Your Job.)
However, the FLSA has exemptions for certain types of workers. One of the most common exemptions is for "white collar" workers. Employers are not required to comply with minimum wage and overtime obligations for these employees.
Types of Exempt Employees
The following categories of white collar employees may be exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act:
- executive employees
- administrative employees
- professional employees
- computer employees
- outside salespersons, and
- highly compensated employees.
The executive exemption applies to managerial employees who perform certain duties and make a certain threshold salary. The minimum salary to qualify for the executive exemption is $455 per week or $23,660 per year. (However, these minimums are expected to increase to $970 per week or $50,440 per year in 2016.) Executive employees must also be paid on a “salary basis,” which means that they receive the same amount in wages each pay period, regardless of the quality or quantity of their work.
To qualify for the executive exemption, all of the following requirements must also be met:
- The employee's primary duty must relate to managing the business or one of its recognized departments or subdivisions.
- The employee must customarily and regularly direct the work of at least two full-time employees (or their equivalent in part-time employees).
- The employee must have the authority to hire or fire employees, or the employee's recommendations as to hiring, firing, promotion, or demotion must carry particular weight.
Management duties include tasks such as interviewing, hiring, and training employees; setting employee’s hours and wages; creating work schedules; directing the work of employees; giving feedback to employees as to performance; disciplining employees; dealing with employee complaints; planning and managing company budgets; and determining the types of materials or equipment to purchase.
To qualify for the administrative exemption, an administrative employee must also earn at least $455 per week or $23,600 per year and be paid on a salary basis. In addition, the employee must meet both of the following requirements:
- The employee's primary duty must be performing office or other non-manual work which directly relates to the management or general business operations of the employer or its customers.
- The employee's primary duty must include the exercise of discretion and independent judgment with respect to significant matters.
An employee is engaged in administrative work if he or she performs tasks that keep the business running, such as those related to budgeting, accounting, and taxes; insurance; advertising and marketing; purchasing and procurement; quality control; human resources; public relations; and legal and regulatory compliance. Tasks that are central to creating the employer’s product or selling the employer’s services are not considered administrative work. For example, an executive assistant who manages the day-to-day of the company’s CEO might qualify as an administrative employee, while a salesperson selling the company’s products would not.
To qualify for the professional exemption, a professional employee must also earn at least $455 per week or $23,600 per year and be paid on a salary basis. In addition, the employee must qualify as either a “learned professional” or a “creative professional.”
The learned professional exemption applies to employees who have achieved a certain level of education or received a certain amount of professional training. These employees must meet all of the following requirements:
- The employee’s primary duty must be intellectual work requiring advanced knowledge and the regular exercise of discretion and judgment.
- The advanced knowledge must be in a field of science or learning (such as law, medicine, accounting, engineering, architecture, teaching, science, or pharmacy).
- The advanced knowledge must be acquired by a prolonged course of specialized intellectual instruction (for example, by obtaining a certain academic degree or receiving similar intellectual training).
Examples of learned professionals include doctors, lawyers, pharmacists, dentists, engineers, and scientists.
The creative professional exemption applies to employees whose work requires invention, imagination, originality, or talent in an artistic or creative field. This may include, for example, actors, artists, novelists, composers, and dancers.
To qualify for the computer professional exemption, computer employees must either be paid on a salary basis and earn at least $455 per week ($23,660 per year) or be paid at least $23.63 per hour. Those employed as computer systems analysts, computer programmers, software engineers, or other similarly skilled workers in the computer field can qualify under this exemption.
In addition, an exempt computer employee’s primary duty must be in one of the following areas:
- Applying systems analysis techniques and procedures, including consulting with users to determine hardware, software, or system functional applications.
- Designing, developing, documenting, analyzing, testing, creating or modifying computer systems or programs (including prototypes), based on and related to user or system design specifications.
- Designing, documenting, testing, creating, or modifying computer programs related to machine operating systems.
- A combination of the above duties, requiring the same level of skill.
This exemption does not apply to employees whose duties involve the manufacture or repair of computer hardware.
Outside Sales Exemption
The outside sales exemption applies to an employee who meets both of the following requirements:
- The employee's primary duty is making sales or obtaining orders or contracts for services, or for the use of facilities, for which clients or customers pay compensation.
- The employee is customarily or regularly engaged in these activities away from the employer's place of business.
An outside sales employee typically makes sales at the customer's place of business or home, if selling door-to-door. The outside sales exemption does not have a minimum salary requirement.
Highly Compensated Employees
The FLSA also includes an exemption for highly-paid employees. An employee qualifies if all of the following requirements are met:
- The employee earns at least $100,000 per year, of which at least $455 per week is paid on a salary basis.
- The employee’s primary duty involves office or other non-manual work.
- The employee customarily and regularly performs at least one of the duties required by the executive, administrative, or professional exemptions.
Know Your Rights
The white collar exemptions are construed narrowly and intended to be the exception, rather than the rule. However, some employers improperly classify employees as exempt in order to avoid paying overtime. If your employer has categorized you under one of these exemptions, but you don’t believe you meet all of the requirements, you may want to consult with an employment lawyer. An employment lawyer can also tell you whether your state has exemption laws that provide you with additional protection.