What Types of Employees Are Governed Under the Fair Labor Standards Act (FLSA)?
Posted In: Business Law   | Posted by: Arenstein & Anderson Co., LPA
Making the decision on how to compensate employees is a critical step for every business. Often, this decision can be extremely complicated due to various factors unique to the employee or to the business. Having experienced legal counsel to guide your businessthrough the decision making process is essential to making sure you get it right.
The Fair Labor Standards Act (“FLSA”) prescribes basic minimum wage and overtime pay for employees. Assuming that an employer is subject to the FLSA or similar state law, every employee is covered under the FLSA unless they are otherwise deemed exempt. These exemptions are where most employers make mistakes in compensating their employees.
In order for an employee to be exempt from the FLSA, that employee must be (i) paid at least $23,600 per year ($455 per week), (ii) be paid on a salary (non-hourly) basis, and (iii) perform an exempt job duty. Accordingly, there are three tests that an employer must perform on each employee to determine if the employee is exempt or nonexempt, namely: the salary level test; salary basis test; and exempt duties test.
The salary level test is fairly straightforward. If an employee makes less than $23,600 per year, they are nonexempt. Additionally, if an employee makes over $100,000 per year they are likely exempt, excepting extremely rare circumstances. If the salary level test is met, then the employer can continue to the salary basis test.
The salary basis test may prove to be a hurdle for some employers. Essentially, an employee must have a “guaranteed minimum” amount of money that will be received on a weekly basis provided the employee provides any services to the employer. If the salary basis test is met, then the employer can continue to the exempt duties test.
When dealing with the exempt duties test, there are three main categories: executive; professional; and administrative. This is the test that trips up many employers.
An employee is exempt from the FLSA if the employee performs executive job duties. These job duties include: regularly supervising at least two other employees; management is a primary component of their position; and has genuine input into the job status of other employees (typically hiring and firing).
An employee is exempt from the FLSA if the employee performs traditional “learned professional” job duties. The traditional “learned professional” jobs include: lawyers, doctors, dentists, and architects. These types of jobs are said to require advanced knowledge. However, there are many that are not that clear cut. For instance, a registered nurse is probably exempt, while a licensed practical nurse is probably nonexempt. In addition, creative professionals are exempt under the job duties test. This includes those employees whose work requires invention, imagination, originality, or talent.
Finally, an employee is exempt for the FLSA if the employee performs administrative job duties. These duties must include: office or non-manual work; that is directly unrelated to management or general business operations; and that involves independent judgment on matters of significance. This exemption is probably the hardest for employers to utilize correctly. Simply put, just because you give someone a fancy title does not automatically make that person exempt.
Incorrectly applying these rules to an employee or a group of employees can have a disastrous effect on the bottom line of a business. Having experienced legal representation assist your business with these decisions is essential to avoid the pitfalls and risks.
About Arenstein & Andersen Co., LPA
Arenstein & Andersen Co., LPA, located in Dublin, Ohio, provides comprehensive business services to businesses of all shapes and sizes, including those in the medical, dental, and veterinary fields. A sampling of our business services are the formation and dissolution of business entities, preparation and implementation of business agreements, preparation and implementation of employment related agreements, including employee handbooks, employee contracts, independent contractor agreements, non-competition agreements, non-solicitation agreements, confidentiality agreements, and severance agreements, advising employers on implementation, practice, and compliance with Ohio and Federal laws relating to employment, including Title VII, ADA, ADEA, FMLA, PDA, OAWA, health care continuation, workers’ compensation, unemployment compensation, NLRA, FLSA, Ohio wage and hour laws, OSHA, and COBRA, negotiation, planning, and other assistance with executive compensation packages, including tax aspects, stock options, benefits, and related issues.