Avoid Legal Penalties by Understanding FLSA Changes
Owning a business and managing a workforce is more than a full-time job. This all-encompassing role comes with loads of paperwork and ever-changing compliance regulations. One such law, the Fair Labor Standards Act (FLSA), has been around since 1938 and establishes minimum wage, overtime pay eligibility, recordkeeping and child labor standards. However, in August 2023, the Department of Labor announced a proposal to update and review the regulations issued in the FLSA, implementing the exemption from minimum wage and overtime pay requirements for executive, administrative and professional employees, that went into effect in March 2024.[1]
Under the FLSA, employees are classified as either exempt or non-exempt, which determines their eligibility for overtime pay and other protections under the law. It is important for employers to pay close attention to this distinction, so that they do not face legal penalties from the government or disgruntled employees who are entitled to lost wages.
Non-Exempt Employees: Non-exempt employees are entitled to receive at least the federal minimum wage for all hours worked and overtime pay for hours worked over 40 in a workweek. They are subject to the FLSA’s minimum wage and overtime provisions and must be paid for all hours worked. Non-exempt employees typically include hourly workers, although some salaried employees may also be classified as non-exempt.
Exempt Employees: Exempt employees are not entitled to receive overtime pay under the FLSA. They are “exempt” from the FLSA’s minimum wage and overtime provisions because they typically hold executive, administrative, professional or outside sales positions, as defined by the FLSA regulations. Exempt employees are usually paid on a salary basis rather than hourly.
To qualify for exempt status, employees must meet certain criteria related to their job duties and salary level. These criteria are outlined in the FLSA regulations and include factors such as the nature of the work performed, the amount of independence and discretion in decision-making, and the level of responsibility within the organization.
Executive Exemption: In order to qualify for the executive employee exemption, the employee must (1) meet certain salary requirements, (2) primarily perform management duties of the enterprise, (3) direct the work of at least two or more other full-time employees and (4) have the authority to hire or fire other employees.[2]
Administrative Exemption: In order to qualify for the administrative employee exemption, the employee must (1) meet certain salary requirements, (2) perform office or non-manual work directly related to management and (3) exercise discretion and independent judgement with respect to matters of significance.[3]
Professional Exemptions: In order to qualify for the learned professional employee exemption, the employee must (1) meet certain salary requirements, (2) perform work requiring advanced knowledge, (3) use advanced knowledge in a field of science or learning and (4) use advanced knowledge customarily acquired by a prolonged course of specialized intellectual instruction. In order to qualify for the creative professional employee exemption, the employee must (1) meet certain salary requirements and (2) perform work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.[4]
Other Exemptions: There are other exemptions, including computer employees, outside sales employees, highly compensated employees, blue collar workers, police, firefighters, paramedics and first responders, that can be found on dol.gov.
Employers are responsible for properly classifying their employees as exempt or non-exempt based on their job duties and salary, and misclassification can lead to legal consequences. It’s essential for employers to understand the criteria for exemption under the FLSA and help ensure compliance with the law to avoid potential penalties. Additionally, state labor laws may have their own criteria for exempt status, which employers must also consider.
