FLSA: What You Need to Know
by Samantha Byrd, HR Business Partner

The difference between exempt and non-exempt employees is who gets paid overtime and who doesn't. Not knowing the difference between these categories could cost you a lot of money. Employees who qualify as "exempt" are exempt from overtime regulations (and minimum wage laws), whereas "non-exempt" employees must be paid for every hour of overtime they work.

The federal Fair Labor Standards Act (FLSA) as well as the laws of each of the 50 states regulate what constitutes "overtime." This basic set-up has been around since the inception of the Department of Labor's Fair Labor Standards Act (FLSA) in the 1930s, but over the years things have become more complicated, especially when it comes to small business.

Many employers incorrectly believe that all salaried employees are exempt or that by paying an employee a salary, they automatically become exempt. However, just as the labels "employee" and "independent contractor" don't determine a worker's actual status in the eyes of the IRS, the same is true for exempt and non-exempt employees in the eyes of the federal and state labor departments. The legal definitions of "exempt" and "non-exempt" have much more to do with an employee's level of responsibility or his or her status as a professional.

Who Must Comply With The FLSA?
Employees must be employed by a company that falls under the FLSA. That means the organization must have a unified operation, common control and a common business purpose. This organization must also meet any one of the following criteria:

• Annual gross volume of sales made or business done is not less than $500,000 (exclusive of excise taxes at the retail level that are separately stated); or
• The organization is engaged in the operation of a hospital, an institution primarily engaged in the care of the sick, the aged, or the mentally ill who reside on the premises; a school for mentally or physically disabled or gifted children; a preschool, an elementary or secondary school, or an institution of higher education (whether operated for profit or not for profit); or
• The work being done is an activity of a public agency; or
• The organization engages in interstate commerce, the production of goods for interstate commerce, or in any closely related occupation directly essential to such production.

Exempt or Non-Exempt
It's not a question of whether an employee is salaried or hourly, but rather whether or not the employee is exempt from the FLSA or not. Typically, those that are exempt are paid salaries and those that are not exempt are paid by the hour. If it were an issue of titles, then this would be easy, but it isn't. The courts have gone by what the employee does, rather than by what they are called, to determine whether or not an employee is exempt.

Exempt Employees
By law (Section 13(a)(1) of the Fair Labor Standards Act as defined by Regulations, 29 CFR Part 541), the following employees must be exempt, according to the FLSA definition of:

• Executives
• Administrative Employees
• Professionals (learned and creative)
• Computer Employees
• Outside Sales
• Highly Compensated Employees

Non-Exempt Employees
Covered, non-exempt workers are entitled to a minimum wage of not less than $7.25 per hour effective July 24, 2009. Non-exempt workers must be paid overtime pay at a rate of not less than one and one-half times their regular rates of pay after 40 hours of work in a workweek. On the other hand, these employees are paid only for the time they actually work.

Blue Collar Workers
The exemptions do not apply to manual laborers or other workers who perform work involving repetitive operations with their hands, physical skill and energy. FLSA-covered, non-management employees include those in:

• Production
• Maintenance
• Construction
• Carpentry
• Electricians
• Mechanics
• Plumbers
• Iron workers
• Craftsmen
• Operating engineers
• Longshoremen
• Others with similar kinds of work

First Responders
The exemptions also do not apply to first responders regardless of rank or pay level or the type of work they are engaged in at any given time. These are listed by the Department as:

• Police officers
• Detectives
• Deputy sheriffs
• State troopers
• Highway patrol officers
• Investigators
• Inspectors
• Correctional officers
• Parole or probation officers
• Park rangers
• Fire fighters
• Paramedics
• Emergency medical technicians
• Ambulance personnel
• Rescue workers
• Hazardous materials workers and similar employees

For most businesses, the rules are fairly basic: those employees that meet the exemption criteria are paid a salary, those that do not are compensated hourly. If you are at a loss to describe what a given employee does, consider what they spend the majority of their time (80%) doing. If it falls into the exempt category, then treat them as such. If not, consider them hourly. There are different rules regarding how you keep track of the time for these different classes of employees so make sure that you are familiar with the current standards. Consult your HR advisor, your attorney and/or your payroll service provider or the U.S. Department of Labor at www.dol.gov.

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