Administrative, Professional, Computer, and Executive FLSA Exemptions

With the new changes coming to the FLSA overtime rules later this year, many business owners may still have questions about who is considered exempt and non-exempt. The four types of employee classifications that are not affected by the new rules are the Administrative, Professional, Computer, and Executive FLSA exemptions.

To be properly qualified for one of these exemptions, the employee must pass three tests: They must perform certain specific duties, they must be paid the minimum salary for exempt employees as designated by the Department of Labor, and 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.

Administrative Exemption

Administrative Employee Duties Test

1. The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. (This might include work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network, Internet and database administration; legal and regulatory compliance; and similar activities.); and
2. The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. (Consider whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; carries out major assignments in conducting the operations of the business; performs work that affects business operations to a substantial degree; has authority to commit the employer in matters that have significant financial impact; has authority to waive or deviate from established policies and procedures without prior approval.)

Professional Exemption

There are two kinds of professional employee exemption. Employees only need to qualify for either Learned or Creative to be exempt.

Learned Professional

1. The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment; and
2. The advanced knowledge must be in a field of science or learning; and
3. The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction (usually an advanced degree, such as a Master’s, JD, MD, or PhD)

Work Requiring Advanced Knowledge
“Work requiring advanced knowledge” means work which is predominantly intellectual in character, and which includes work requiring the consistent exercise of discretion and judgment. Professional work is therefore distinguished from work involving routine mental, manual, mechanical or physical work.  A professional employee generally uses the advanced knowledge to analyze, interpret or make deductions from varying facts or circumstances.  Advanced knowledge cannot be attained at the high school level.

Field of Science or Learning
Fields of science or learning include law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical and biological sciences, pharmacy and other occupations that have a recognized professional status and are distinguishable from the mechanical arts or skilled trades where the knowledge could be of a fairly advanced type, but is not in a field of science or learning.

Customarily Acquired by a Prolonged Course of Specialized Intellectual Instruction
The learned professional exemption is restricted to professions where specialized academic training is a standard prerequisite for entrance into the profession. The best evidence of meeting this requirement is having the appropriate academic degree. However, the word “customarily” means the exemption may be available to employees in such professions who have substantially the same knowledge level and perform substantially the same work as the degreed employees, but who attained the advanced knowledge through a combination of work experience and intellectual instruction.  This exemption does not apply to occupations in which most employees acquire their skill by experience rather than by advanced specialized intellectual instruction.

Teachers
Teachers are exempt if their primary duty is teaching, tutoring, instructing or lecturing in the activity of imparting knowledge, and if they are employed and engaged in this activity as a teacher in an educational establishment. Exempt teachers include, but are not limited to, regular academic teachers; kindergarten or nursery school teachers; teachers of gifted or disabled children; teachers of skilled and semi-skilled trades and occupations; teachers engaged in automobile driving instruction; aircraft flight instructors; home economics teachers; and vocal or instrument music teachers. The salary and salary basis requirements do not apply to bona fide teachers. Having a primary duty of teaching, tutoring, instructing or lecturing in the activity of imparting knowledge includes, by its very nature, exercising discretion and judgment.

Practicing Doctors and Lawyers
An employee holding a valid license or certificate permitting the practice of law or medicine is exempt if the employee is actually engaged in such a practice. An employee who holds the requisite academic degree for the general practice of medicine is also exempt if he or she is engaged in an internship or resident program for the profession. The salary and salary basis requirements do not apply to bona fide practitioners of law or medicine.

Creative Professional
The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Exemption as a creative professional depends on the extent of the invention, imagination, originality or talent exercised by the employee. Whether the exemption applies must be determined on a case-by-case basis. The requirements are generally met by actors, musicians, composers, certain painters, cartoonists, and novelists. Be wary of applying this exemption to an employee whose artistic expression is limited by the scope of their tasks. For instance, a graphic designer who spends their time making PowerPoint presentations for jury trials probably would not qualify for this exemption, since a different graphic designer given the same task would likely produce a very similar product.

Computer Exemption

The Computer exemption focuses on highly skilled computer systems analysts, programmers, software engineers, testers, and documenters.

In 1990, the Professional exemption was expanded to expressly include certain persons working in the computer industry.  Thus, highly skilled computer systems analysts, programmers, software engineers, testers, and documenters are eligible for the Professional exemption if their primary duty includes one of the following:

• the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications; or
• the design, development, documentation, analysis, creating, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; or
• the design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or
• a combination of the aforementioned duties, the performance of which requires the same level of skills.

This exemption does not include entry level employees or trainees or persons who merely operate, use, or repair computers.  Computer professionals can still be exempt if they are paid the minimum salary requirement as defined by the FLSA.

Executive Exemption

Executive Employee Duties Test

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

Executive Management Behaviors

•       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

Business Owners
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.

The new FLSA rules can be challenging and complicated. Let GTM make it easier for you – contact us at (518) 373-4111 to learn how we can help.