Determining employee classification and exemptions per the Fair Labor Standards Act (FLSA) can be a tricky task for employers. In order to qualify for exemptions under FLSA, employees must meet the criteria in three tests: a salary basis test, a salary level test, and a duties test. In this article, we’ll discuss these three tests and how employers can use them to determine employee exemption status.
What is the salary basis test?
The salary basis test is used to make sure an employee is paid a predetermined and fixed salary that is not subject to reduction due to variations in the quality or quantity of work. It is used to ensure that the employee meets a minimum specified amount to qualify for the exemption.
According to the U.S. Department of Labor (DOL), in order to qualify for exemption, employees generally must be paid no less than $455 per week on a salary basis. These salary requirements do not apply to outside sales employees, teachers, and employees practicing law or medicine. Also, exempt computer employees may be paid at least $455 on a salary basis or on an hourly basis at a rate not less than $27.63 an hour. You can learn more about the salary basis test here.
What is the salary level test for highly compensated employees?
The salary level test is used to ensure that the employee meets a minimum specified amount to qualify for the exemption. The salary level test is simply as follows: Employees who are paid less than $23,600 per year ($455 per week) are nonexempt. (Employees who earn more than $100,000 per year are almost certainly exempt.) You can learn more about the salary level test here.
But, changes are coming!
The DOL has proposed regulations to revise the salary basis test by increasing the weekly salary from $455 per week to the 40th percentile of weekly earnings for full-time salaried workers. The DOL expects that this figure will increase to $970 per week or $50,440 annually by the time the regulations are issued later in 2016.
The proposed rule would also increase the $100,000 salary level for highly compensated individuals to $122,148 per year—the 90th percentile of weekly earnings of full-time salaried workers.
The DOL has stated that these updates are necessary to accurately represent the intent of minimum wage and overtime exemptions, which have not been updated since 2004.
What is the job duties test?
An employee who meets the criteria of the salary level test and the salary basis test is exempt only if they also perform exempt job duties. The primary job duties test must meet all the requirements of Department of Labor regulations. “Primary duty” means the principal, main, major, or most important duty that the employee performs, and determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.
According to the Department of Labor, to qualify for exemption, job titles do not determine exempt status—the roles and tasks of the job must be evaluated in order to make the correct determination. There are three typical categories of exempt job duties: executive, professional, and administrative. You can learn about the specific requirements under each category, as well as more about job duties, here.
If you’re looking for more information than we’ve offered in this brief look at the three major tests for determining exemption, check out the following resources: