The Fair Labor Standards Act of 1938 (FLSA) provides an exemption from overtime requirements for any employee employed in a bona fide executive, administrative or professional capacity, for skilled computer workers and for highly compensated employees. The job title of an employee does not establish an employee’s exempt status. The exempt or non-exempt status of an employee must be determined on the basis of whether the duties actually performed by the employee (as opposed to the employee’s job title or job description) meet the requirements of the regulations for a particular exemption. This article summarizes the primary duties tests for the executive, administrative, professional, skilled computer and highly compensated employee exemptions. It is important to keep in mind that, except for the skilled computer exemption, each exemption requires that the employee be compensated on a “salary basis.” See Summer 2009 Newsletter, pp. 8-9

Executive Exemption

  • The employee’s primary duty is managing the enterprise in which the employee is employed or a customarily recognized department or subdivision of the enterprise. A customarily recognized department or subdivision must have a permanent status and a continuing function.
  • The employee customarily and regularly directs the work of two or more full-time employees or their equivalent (e.g., four half-time employees).
  • The employee has authority to hire or fire other employees or his/her recommendation is given particular weight, even if a higher level authority’s recommendation has more importance or a higher authority makes the ultimate decision.
  • The employee is paid a salary of not less than $455 per week.

Administrative Exemption

  • The employee’s primary duty is the performance of office or non-manual work directly related to the management or general business operations of the bank or the bank’s customers. The employee must perform work directly related to assisting with the running or servicing of the bank’s business operations.
  • The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. The exercise of discretion and independent judgment involves the evaluation and comparison of possible courses of conduct, even though the employee’s decision or recommendation may be subject to review at a higher level. “Matters of significance” refers to the level of importance or the consequence of the work performed by the employee.
  • The employee is paid a salary of not less than $455 per week.

Professional Exemption

  • The employee’s primary duty is the performance of work requiring advanced knowledge customarily gained through a prolonged course of specialized education (e.g., law or accounting).
  • “Work requiring advanced knowledge” means work which is predominantly intellectual and involves the consistent exercise of discretion and independent judgment.
  • The employee is paid a salary of not less than $455 per week.

Skilled Computer Exemption

  • The employee is paid a salary of not less than $455 per week or at an hourly rate of not less than $27.63 per hour.
  • The employee is employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field.
  • The employee’s primary duty consists of:
    • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
    • The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
    • The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
    • A combination of any of these duties, the performance of which requires the same level of skills.

Highly Compensated Exemption

  • An employee with total annual compensation of at least $100,000 (including commissions and nondiscretionary bonuses) may be deemed exempt if the employee’s primary duty includes customarily and regularly performing office or non-manual work consisting of any one or more of the exempt duties of an executive, administrative or professional employee, even though the employee does not meet all of the other requirements for the particular exemption. For example, if a highly compensated employee customarily and regularly directs the work of two or more other employees, the employee need not meet all of the other requirements of the executive exemption.
  • The total annual compensation must include at least $455 per week paid on a salary or fee basis.

Primary Duty

An employee’s “primary duty” means the principal, main, major or most important duty the employee performs. The amount of time an employee spends performing exempt work can be a guide in determining whether exempt work is the primary duty. An employee who spends more than 50 percent of his/her time performing exempt work will generally satisfy the primary duty test. However, an exempt employee may spend less than 50 percent of his/her time performing exempt work if other factors support the exemption.

Customarily and Regularly

This phrase refers to the frequency a duty is performed. It must be greater than occasional, isolated or one-time tasks, but it may be less than constant.

A Word on Trainees

The executive, administrative and professional exemptions do not apply to employees training for employment in an executive, administrative or professional capacity but who are not actually performing the duties of the position during the training.

Additional Considerations

The most commonly used and misapplied exemption is the “administrative” exemption. As a result, attention must be given to careful documentation of the basis for the administrative exemption in each individual case.

The FLSA is considered a “remedial statute.” As such, it is employee friendly, and exemptions are construed against the employer. This is particularly important to keep in mind in today’s regulatory environment. This year, the U.S. Department of Labor, Wage and Hour Division, received a substantial budget increase and immediately announced an aggressive hiring program for field investigators. Labor Secretary Solis has repeatedly emphasized the need to step up the agency’s enforcement efforts. As a result, it is likely that banks and other industries will experience an increase in random field audits and closer scrutiny of payroll records during field investigations of individual complaints.