- Three basic tests must be successfully met for any worker to receive a “white-collar” exemption.
- FLSA rules are being challenged.
“White-collar” exemptions fall into several categories. The following are the most common:
- Executive, typically applied to supervisors and other managers.
- Administrative, for employees with a substantial amount of authority and discretion.
- Learned professional, covering employees who analyze facts and draw conclusions.
- Creative professional, which can be applied to actors, musicians, and similar occupations.
- Computer employees, for programmers, software engineers, and similar occupations.
- Outside sales, for employees who mostly travel to make sales.
Under the FLSA rules, to qualify for a white-collar exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis not less than the required minimum salary per week. However, the salary requirement does not apply to outside sales or computer employee exemptions, nor to teachers, nor to practitioners of law or medicine.
In order for employees to qualify for this type of exemption, they must meet three basic tests:
- Salary level test,
- Salary basis test, and
- Duties test.
Since 2020 the Fair Labor Standards Act (FLSA) rules set the salary level threshold at $684 per week (equivalent to $35,568 per year for a full-year worker). The total annual compensation requirement for “highly compensated employees” is $107,432 per year.
In early 2024, the DOL issued a final rule raising the salary threshold in two phases, but the rule was stopped by litigation.
Salary level test
Under the rules, with a few exceptions, exempt employees must be paid not less than the required minimum salary per week. Employees paid a salary at or above the minimum level are exempt only if they also meet the salary basis and duties tests.
To qualify as an exempt executive, administrative, or professional employee, the worker must be compensated on a salary basis at a rate of not less than the required minimum salary per week, exclusive of board, lodging, or other facilities. Administrative, professional, and computer employees may also be paid on a fee basis, as defined in 29 CFR 541.605.
The minimum weekly salary is one of several tests applied to determine if exemptions are applicable; it is not a minimum wage requirement. No employer is required to pay an employee the salary specified unless the employer is claiming an exemption.
If an employee’s exempt status is subject to the salary basis test, but the worker is paid less than $684 per week, the employee is not exempt. If an amount is paid for a period longer than one week, the weekly equivalent of the amount paid must be computed to determine if the amount equals or exceeds $684 per week.
The minimum salary must be paid “free and clear.” That is, the salary cannot include the value of any non-cash items an employer may furnish to an employee, such as board, lodging, or other facilities (e.g., meals furnished to employees of restaurants).
To qualify as a guaranteed salary, payment of a fixed, predetermined amount is required for each workweek an exempt employee performs any work. Bonuses and commissions do not generally qualify as fixed, predetermined amounts paid “free and clear” because they are normally subject to variations based on the quality or quantity of work performed.
Note that some states have established higher minimum salary requirements or have laws that could result in a salary above the federal minimum requirement.
Salary basis test
In addition to the salary level test, exempt employees must also be paid on a salary basis. This basis means the employee regularly receives a predetermined amount of compensation each pay period, and the predetermined amount cannot be subject to reduction because of variations in either the quality or quantity of work the employee performs.
This salary must be paid on a weekly or less-frequent basis (semi-monthly, monthly, etc.). Exempt employees must receive the full salary for every week they perform any work, regardless of the number of days or hours worked. However, they need not be paid for weeks they perform no work.
Except for seven situations specifically cited in the regulations, an exempt employee must receive the full salary for any week that employee performs any work. If the employer makes improper deductions from the employee’s predetermined salary, the employee is not paid on a salary basis.
Duties test
The regulations have a duties test for each type of exempt employee. These are divided into the categories of executive, administrative, professional, computer, and sales employees.
To qualify for an exemption, the employee’s primary duty must be the performance of exempt work. Each classification uses the term “primary duty,” and the term is defined by regulation. Job titles do not determine exemption status.
The term “primary duty” means the principal, main, major, or most important duty the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with major emphasis on the character of the employee’s job as a whole. Factors to consider include, but are not limited to:
- The relative importance of exempt duties compared with other types of duties,
- The amount of time spent performing exempt work,
- The employee’s relative freedom from direct supervision, and
- The relationship between the employee’s salary and wages paid to other employees for the kind of nonexempt work performed by the employee.
The salary level is an important consideration because if an allegedly exempt employee does not earn much more than nonexempt employees, this may suggest the position does not require much additional responsibility. 