FLSA Exemptions Flow Chart and Exemption Test

[Pages:5]FLSA EXEMPTIONS FLOW CHART

This flow chart serves as a basic outline for an initial analysis of positions being considered for exemption under the FLSA and is meant to serve as one of several tools for this analysis. It may be appropriate for new positions which are borderline exempt to have legal counsel review the analysis and exemption decisions. The three-step process is explained in greater detail on the following pages.

STEP 1: SALARY BASIS TEST

STEP 2: EXEMPTION APPLICABILITY

STEP 3: JOB ANALYSIS

Is the employee paid at least $455 per week ($23,660 per annum), not subject to reduction due to variations in quantity/quality of work performed?

The computer professional exemption has a salary basis test of $455 per week or $27.63 per hour. The outside sales exemption is not subject to the salary basis test.

YES

NO

Does the Employee perform any of the following types of jobs?

Executive ? management is the employee's primary duty

Administrative ? employee performing nonmanual office work

Professional/Creative ? employee whose work requires highly advanced knowledge/education; creative and artistic professional

Computer Professional ? employee involved in design or application of computers and related systems

Outside Sales ? employee making sales or taking orders which influence sales outside of the employer's premises

NO

YES

A thorough analysis of the job duties must be performed to determine exempt status. An exempt position must pass both the salary basis and the duties tests.

Employee is Non-Exempt

Employee is Non-Exempt

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FLSA EXEMPTIONS FLOW CHART

Step 1: Apply the salary basis test If the employee is paid at least $455 per week ($23, 660 per annum) that is not subject to reduction due to variations in quantity/quality of work performed, continue to Step 2. Please note that the salary basis test for computer professionals is $455 per week or $27.63 per hour. The outside sales exemption is not subject to the salary basis test.

Step 2: Determine which exemption applies Executive ? Employee whose primary duty is to manage the business or a recognized department/entity and who customarily directs the work of two or more employees. Also includes individuals who hire, fire or make recommendations that carry particular weight regarding employment status. Examples: executive, director, owner, manager, supervisor.

Administrative ? Employee whose primary activities are performing office work or non-manual work on matters of significance relating to the management or business operations of the firm or its customers and which require the exercise of discretion and independent judgment. Examples: analyst, accountant.

Professional Creative ? Employee who primarily performs work requiring advanced knowledge/education and which includes consistent exercise of discretion and independent judgment. The advanced knowledge must be in a field of science or learning acquired in a prolonged course of specialized intellectual instruction. Creative professionals perform work requiring invention, imagination, originality and/or talent in a field of artistic endeavor. Examples: attorney, physician, statistician, architect, biologist, pharmacist, engineer, teacher, author, editor, composer, musician, artist.

Computer Professional ? Employee who primarily performs work as a computer systems analyst, programmer, software engineer or similarly skilled work in the computer field performing a) application of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system functional specifications; or b) design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specification; or c) design, documentation, testing creation or modification of computer programs based on and related to user or system design specifications; or a combination of the duties described above, the performance of which requires the same level of skills. Examples: system analyst, database analyst, network architect, software engineer, programmer.

Outside Sales ? Employee who performs sales work off the company's premises and whose primary duties include making sales or obtaining order or contracts for services or for the use of facilities for which the client or customer pays. This employee is customarily and regularly away from the company's place of business while performing such duties. Examples: sales representative, account manager, business development representative.

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Guidelines for Determination of Exempt Status Under Fair Labor Standards Act (FLSA)

Step 3: Conduct job analysis If the employee passes BOTH the salary test (excluding outside sales) and the preliminary exemption criteria review, then a thorough job analysis of the duties actually performed by each employee becomes the key in determining exempt status. An exempt position must pass both the salary basis and duties test. Job titles are insufficient to determine exempt status.

Job analysis should include the following actions:

1. Review minimum qualifications established for the job, including education, on-the-job training and experience. 2. Review prior job descriptions, job questionnaires and related documentation. 3. Confirm with managers that duties and qualifications are accurate. 4. Conduct workflow reviews - a useful tool in ascertaining job functions, processes, job boundaries and organizational operations. Schematics and charts

can also prove to be helpful. 5. Gather organizational charts for departments and positions being reviewed. 6. Review policy manuals to determine functional autonomy of positions. 7. Gather prior performance reviews which document duties and responsibilities or respective positions.

If little is known regarding the history of a position or it has been inadequately documented, HR should consider conducting a review of the position to bring it up to date. Recommended activities may include direct job duty observation, work function or work breakdown analysis, group or peer review of occupants sharing the classification, job banding/job progression plans and work log analysis and job metrics.

Ancillary issues 1. Review state wage/hour laws for those states in which the organization operates to ensure there is no conflict with state laws (available at ernment/states/aroundcountry_published/CMS_008223.pdf). 2. Capture payroll costs and budgetary needs and evaluate whether costs and budgetary considerations will be best met by raising incumbent salaries to retain exempt status (provided duties test is met), budgeting for overtime costs or hiring additional staff to eliminate the need for overtime. 3. Ensure HRIS systems are updated to accurately reflect employee's exempt/non-exempt classifications. 4. Review and honor collective bargaining agreements, where possible.

Exemption Test: An employee must be earning, at least, $23,660 ($455/week) and meet all of the requirements of one of the exemption tests as outlined below to be eligible for exemption under the FLSA. (Employees earning more than $100,000 in total annual compensation are only required to customarily and regularly perform one of the exempt duties of the Executive, Administrative or Professional tests). There is no salary requirement for the Outside Sales exemption.

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Guidelines for Determination of Exempt Status Under Fair Labor Standards Act (FLSA)

Exemption Category - Job Duties Test

Executive

Administrative

Professional

Computer Professional

Outside Sales

Learned

Creative

Primary duty of managing

the enterprise or a recognized department of subdivision. - Employees who spend

more than 50% of their time performing exempt work will generally satisfy the primary duty requirement. However, the regulations do not required that exempt employees spend more than 50% of time performing exempt work.

Primary duty of performing

office or non-manual work directly related to the management or general business operations of the employer or the employer's customers.

Primary duty of the

performance of work requiring advanced knowledge, defined as work, which is predominantly intellectual in character and includes work requiring the consistent exercise of discretion and judgment.

Primary duty of the

performance of work requiring invention, imagination, originality or talent in a recognized field of artistic endeavor.

Employed as a computer

systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the following duties:

a) application of systems analysis techniques and procedures, including consulting with users to determine hardware, software, or system functional applications,

OR

Primary duty of making

sales (any sale, exchange, contract to sell, consignment for sales, shipment for sale or other disposition including the transfer of title to tangible property, and in certain cases of tangible and valuable evidences of intangible property), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer.

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Guidelines for Determination of Exempt Status Under Fair Labor Standards Act (FLSA)

Exemption Category - Job Duties Test

Executive

Administrative

Professional

Learned

Creative

Customarily and regularly

directs the work of two or more other employees (or their equivalent) - Customarily and

regularly means: * A frequency that must

be greater than occasional, but which may be less than constant; * Includes work normally and recurrently performed every workweek; * Does not include isolated or one-time tasks.

Has the authority to hire or

fire other employees (or whose recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees are given particular weight).

Exercises discretion and

independent judgment with respect to matters of significance. - Discretion and

independent judgment is defined as: * The comparison and

evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered.

Must be exercised with

respect to "matters of significance," which refers to the level of importance or consequence of the work performed.

Decisions and

recommendations may be reviewed at a higher level and, upon occasion, revised or reversed.

Advanced knowledge

must be in a field of science or learning.

Advanced knowledge

must be customarily acquired by a prolonged course of specialized intellectual instruction.

Computer Professional

Outside Sales

b) 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 employee must

be customarily and regularly engaged away from the employer's place or places of business.

OR

c) Design, documentation, testing, creation, or modification of computer programs related to machine operating systems,

OR

d) A combination of duties described in a., b., c., the performance of which requires the same level of skills.

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