Individuals employed in bona fide executive, administrative, professional or outside sales positions and who are paid on a salary basis, are exempt from the minimum wage and overtime provisions of the federal FLSA. In Minnesota, executives, administrators, professionals and outside salespersons also are not subject to minimum wage and overtime provisions because they are excluded from the definition of “employees” in Minnesota’s FLSA. Each type of position— executive, administrative, professional, computer professional and outside sales—has a test which is used to determine whether an individual worker fits a particular exemption. Because the regulations governing this area are extensive, employers should consult with their legal counsel before treating an individual employee as exempt.112 Should the employer mis-classify an employee, the penalty may include unpaid overtime for that employee and other similarly classified employees for at least the past two years.
Employers are encouraged to review the new tests under the FLSA at www.dol.gov for specific salary and duties requirements of exempt employees.
An employee can be paid a salary and still not be an exempt employee because he or she does not fit one of the above exemptions. An employee who is paid on an hourly basis rather than a salary basis generally cannot be an exempt employee. An exception to this rule exists for computer professionals if their hourly rate of pay is at least $27.63 per hour.113
The primary duties of the employee (not just the job title) determine his or her status as an exempt or non-exempt employee.114 Only where the employee’s primary duties meet all the criteria under a particular test may the employee be exempt from the minimum wage and overtime provisions of the federal and state FLSAs.115 Regardless of duties, employees earning less than $23,660 or generally classified as “blue collar” employees must receive overtime pay.116
Both professionals and administrators, in order to be exempt, must exercise discretion. The exercise of discretion is not meant to include those day-to-day decisions which, although they are necessary to the daily operations of the business, are routine, or involve prescribed procedures or a determination of whether specific standards are met, or are lacking in substantial importance to the employer’s business as a whole. Certain employees who receive total annual compensation of at least $100,000 may be exempt if they customarily perform exempt duties.117
Exempt employees are generally required to be paid a guaranteed salary for a workweek in which any hours are worked118 and deductions from that salary may only be made under very limited circumstances.119 Deductions from pay may not be made for partial day absences, except as permitted under the Family and Medical Leave Act.120 However, employers may require employees to deduct time for established PTO, vacation or sick leave accruals. Additional pay, usually on a regular basis and according to a formula or system, may appear to constitute overtime pay, inconsistent with the concept of “salary basis,” in the view of some courts. Compensation systems for exempt employees that involve either deductions from or additions to salary should be carefully reviewed by legal counsel. Impermissible payment programs may destroy the FLSA exemption for any employee potentially subject to such a payment program.
CREDITS: The content of this and any related posts has been copied or adopted from An Employer’s Guide to Employment Issues in Minnesota, provided by the Minnesota Department of Employment and Economic Development & Linquist & Vennum P.L.L.P., Tenth Edition, 2009. Copies are available without charge from the Minnesota Department of Employment and Economic Development, Small Business Assistance Office.
This post is also part of a series of posts on Minnesota wage and hour issues.
112. 29 C.F.R. Part 541 et seq. (2007). Individuals employed in bona fide executive, administrative, professional or outside sales positions are not considered “employees” under Minnesota’s FLSA. Minn. Stat. § 177.23, subd. 7 (6) (2007).
113. 29 C.F.R. § 541.600(d) (2007).
114. 29 C.F.R. § 541.2 (2007).
115. 29 C.F.R. §§ 541.100-300 (2007); Minn. Rules § 5200.0180, subd. 1 (2007).
116. 29 C.F.R. § 541.3 (2007).
117. 29 C.F.R. § 541.601 (2007).