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Fact Sheet:
Exemption for Executive Employees Under the Fair Labor Standards Act (FLSA)
This fact sheet provides general
information on the exemption from minimum wage and overtime pay provided
by Section 13(a)(1) of the Fair Labor Standards Act as defined by
Regulations, 29 CFR Part 541.
The FLSA requires that most employees in
the United States be paid at least the federal minimum wage for all
hours worked and overtime pay at time and one-half the regular rate of
pay for all hours worked over 40 hours in a workweek.
However, Section 13(a)(1) of the FLSA
provides 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) and Section 13(a)(17)
also exempt certain computer employees. To qualify for exemption,
employees generally must meet certain tests regarding their job duties
and be paid on a salary basis at not less than $455 per week. Job
titles do not determine exempt status. In order for an exemption to
apply, an employee’s specific job duties and salary must meet all the
requirements of the Department’s regulations.
See other fact sheets in this series for
more information on the exemptions for administrative, professional,
computer, and outside sales employees, and for more information on the
salary basis requirement.
Executive Exemption
To qualify for the executive employee
exemption, all of the following tests must be met:
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The employee must be compensated on
a salary basis (as defined in the regulations) at a rate not less
than $455 per week;
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The employee’s primary duty must be
managing the enterprise, or managing a customarily recognized
department or subdivision of the enterprise;
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The employee must customarily and
regularly direct the work of at least two or more other full-time
employees or their equivalent; and
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The employee must have the authority
to hire or fire other employees, or the employee’s suggestions and
recommendations as to the hiring, firing, advancement, promotion or
any other change of status of other employees must be given
particular weight.
Primary Duty
“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.
Management
Generally, “management” includes, but is
not limited to, activities such as interviewing, selecting, and training
of employees; setting and adjusting their rates of pay and hours of
work; directing the work of employees; maintaining production or sales
records for use in supervision or control; appraising employees’
productivity and efficiency for the purpose of recommending promotions
or other changes in status; handling employee complaints and grievances;
disciplining employees; planning the work; determining the techniques to
be used; apportioning the work among the employees; determining the type
of materials, supplies, machinery, equipment or tools to be used or
merchandise to be bought, stocked and sold; controlling the flow and
distribution of materials or merchandise and supplies; providing for the
safety and security of the employees or the property; planning and
controlling the budget; and monitoring or implementing legal compliance
measures.
Department or Subdivision
The phrase “a customarily recognized
department or subdivision” is intended to distinguish between a mere
collection of employees assigned from time to time to a specific job or
series of jobs and a unit with permanent status and function.
Customarily and Regularly
The phrase “customarily and regularly”
means greater than occasional but less than constant; it includes work
normally done every workweek, but does not include isolated or one-time
tasks.
Two or More
The phrase “two or more other employees”
means two full-time employees or their equivalent. For example, one
full-time and two half-time employees are equivalent to two full-time
employees. The supervision can be distributed among two, three or more
employees, but each such employee must customarily and regularly direct
the work of two or more other full-time employees or the equivalent.
For example, a department with five full-time nonexempt workers may have
up to two exempt supervisors if each supervisor directs the work of two
of those workers.
Particular Weight
Factors to be considered in determining
whether an employee’s recommendations as to hiring, firing, advancement,
promotion or any other change of status are given “particular weight”
include, but are not limited to, whether it is part of the employee’s
job duties to make such recommendations, and the frequency with which
such recommendations are made, requested, and relied upon. Generally,
an executive’s recommendations must pertain to employees whom the
executive customarily and regularly directs. It does not include
occasional suggestions. An employee’s recommendations may still be
deemed to have “particular weight” even if a higher level manager’s
recommendation has more importance and even if the employee does not
have authority to make the ultimate decision as to the employee’s change
in status.
Exemption of Business Owners
Under a special rule for business owners,
an employee who owns at least a bona fide 20-percent equity interest in
the enterprise in which employed, regardless of the type of business
organization (e.g., corporation, partnership, or other), and who is
actively engaged in its management, is considered a bona fide exempt
executive.
Highly Compensated Employees
Highly compensated
employees performing office or non-manual work and paid total annual
compensation of $100,000 or more (which must include at least $455 per
week paid on a salary or fee basis) are exempt from the FLSA if they
customarily and regularly perform at least one of the duties of an
exempt executive, administrative or professional employee identified in
the standard tests for exemption.
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