Dissecting Overtime Pay Exemption Rules

overtime pay exemption rules
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Perhaps one of the most confusing and complex areas of employment law deals with the payment of overtime. Most attorneys and even lay people understand that an employer is required to pay an employee overtime compensation at a rate of 1½ times the employee’s regular hourly rate for all hours worked over 40 in a given work week. However, the confusion occurs in trying to understand which employees are exempt versus non-exempt.

The Fair Labor Standards Act of 1938 provides for the payment of overtime compensation. It also establishes a minimum wage and record keeping standards for employees that all employers must abide by. Employers who fail to comply with the provisions of the FLSA risk civil penalties including the payment of unpaid wages, liquidated damages and payment of the prevailing employee’s attorney’s fees and costs.

In analyzing whether an employee is exempt, we must first consider the type of work the employee is performing. Under the job duties test, workers must perform certain duties as their “primary” duty. There are three (3) main exemptions under the job duties test of the FLSA – the executive exemption, the administrative exemption and the professional exemption.

To fall under the executive exemption, an employee’s primary duty must consist of managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise. Additionally, the employee must customarily and regularly direct the work of at least two (2) or more full-time employees or their equivalent. Finally, the employee must have the authority to hire or fire other employees, or the employee’s suggestions or recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight. The executive exemption can be found at 29 C.F.R. §541.100.

To qualify under the administrative exemption, an employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. In addition, the employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance. The administrative exemption can be found at 29 C.F.R. §541.200.

The final exemption that we commonly hear about is the professional exemption. To qualify for this exemption, the employee’s primary duty must be the performance of work that requires advanced knowledge in a field of science or learning and must be customarily acquired by a prolonged course of specialized intellectual instruction. The professional exemption can be found at 29 C.F.R. §544.300.

In addition to satisfying one of the above exemptions, an employee will only be considered exempt if the employee is paid on a salary basis and if the employee earns a minimum weekly salary. For a very long time, the minimum weekly salary was $455.00 per week which equals $23,660.00 annually.

Toward the end of his tenure, President Obama issued a memorandum directing the Secretary of State to modernize existing overtime regulations. This directive sought to more than double the minimum salary requirement to $913.00 per week or $47,476.00 per year. The final rule was also scheduled to establish a mechanism for automatically updating the salary and compensation levels every three years beginning January 1, 2020.

Shortly before these changes were scheduled to go into effect, Texas District Judge Amos L. Mazzant, III issued a nationwide preliminary injunction blocking the new rule from going into effect. While that case was being litigated, the Department of Labor, under the Trump administration, undertook fact finding with respect to the proposed revised salary requirements. As a result of this fact finding, a new rule went into effect January 1, 2020. Now, in order to be considered exempt, an employee must make at least $684.00 per week or $35,568.00 per year. If an employee fails to satisfy either the duty’s test or the salary test, they cannot be considered exempt.

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