Do Your Employees Qualify for the FLSA’s Executive Exemption?

by Mammoth Team on July 14, 2016

Executive Exemption

Get familiar with some of the exemptions in the FLSA in this three-part series. We’ll look at some of the commonly misused White Collar exemptions: Administrative, Professional, and Executive.

In part three of this three-part series, we focus on the Executive Exemption.

Executive Exemption

To qualify for the exemption, an executive employee needs to pass three tests:

  1. They must perform certain specific duties
  2. They must be paid the minimum salary for exempt White Collar employees as designated by the Department of Labor
  3. They must be paid on a salary basis, meaning they’ll make the same amount every week regardless of how many hours they work, or the quantity or quality of their work

As with most exemptions, the duties test is the most challenging. An employee or position must meet ALL these requirements:

  • Primary duty is the management of an enterprise in which the person is employed or a customarily recognized department or subdivision (example: the sales department).
  • Has authority to hire, fire, or promote other employees or effectively recommend similar actions.
  • Customarily and regularly exercises independent judgment and discretion AND directs the work of two or more full-time employees (or equivalent).

Additional Executive behaviors to consider:

  • Interviewing, selecting, and training of employees
  • Setting and adjusting their rates of pay and hours of work
  • Planning and directing the work of employees
  • Appraising employees' productivity and efficiency
  • Handling employee complaints and grievances
  • Disciplining employees

Keep in mind that the bar is set fairly high when it comes to executive duties. And the primary duty part is important - you’d want to be careful with assistant managers, for example, since they generally only do a few of these tasks, or only do all of these tasks on occasion.

Business Owners may also be exempt from minimum wage and overtime:

A person – whether they are called a business owner or employee – who owns at least a bona fide 20% equity interest in the company, regardless of the type of business organization, and who is actively engaged in its management, is considered a bona fide exempt executive.

If you have questions or need help with employee classificiation, sign up for a free, 7 day trial! You’ll have full access to our team of on-demand HR pros and the HR Support Center, where you can get help with everything from FLSA compliance, to everyday employee issues, to handbooks.

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Topics: Compliance, Wage & Hour