Nonexempt employees are paid at an hourly rate instead of a salary and are protected by the Federal Labor Standards Act (FLSA). Employees who are paid a salary may or may not be exempt, depending on the type of work they do.

Exempt employees are not protected by the FLSA. The category of exempt employees is comprised of executives, administrative employees, professionals, outside salespeople, and certain computer employees. Other employees who aren't protected by the FLSA include learners, apprentices, and full-time students employed in agriculture or retailing; workers with disabilities; and employees who deliver newspapers to consumers.

Revised overtime pay regulations. The Department of Labor has revised the federal regulations governing overtime pay, effective August 23, 2004. The minimum salary level to qualify for exemption from the overtime requirements as an executive, administrative, computer or professional employee is $455 per week or $23,660 annually. Employees paid below this minimum salary level are not exempt from the FLSA overtime pay rules even if the employees meet the executive, administrative, computer or professional job duty requirements.

The following employees are exempt:

• executives whose primary duty is (1) management-related and who (2) customarily and regularly direct the work of two or more employees including the authority to hire or fire other employees or be in a position to make suggestions and recommendations as to the hiring, firing, advancement, promotion or another change of status of other employees that will be given particular weight.
• administrative employees whose primary duty is (1) 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 and (2) the exercise of discretion and independent judgment with respect to matters of significance.
• professionals (doctors, lawyers, teachers, artists) whose primary work (1) requires advanced knowledge in the field of science or learning, is predominantly intellectual, and includes work requiring the consistent exercise of discretion and judgment and (2) the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction; or creative professionals whose primary duty is the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Executives, administrative employees and professionals who earn $100,000 or more annually are required to satisfy only one of the requirements in order to be classified as exempt.

Retail supervisors are included under the executive exemption, even if they perform the same duties as subordinates, if they also perform managerial functions including assigning work, scheduling employees, and/or managing inventory.

Computer employees who are employed as computer systems analysts, computer programmers, software engineers, or other similarly skilled workers in the computer field are exempt from the overtime pay rules if the primary duties performed consist of the application of systems analysis techniques and procedures; the design, development, documentation, analysis, creation, testing or modification of computer systems and/or programs based on and related to user or system design specifications; the design, documentation, testing, creation or modification of computer programs related to machine operating systems; or a combination of these duties, requiring the same level of skills.

Employees who own a 20 percent or more interest in a business and are employed by that business and actively engaged in its management do not have to meet the salary requirements for exempt employees.

Whether or not you and your employees are subject to the FLSA, always keep the exempt/nonexempt distinction in mind.

Recordkeeping for nonexempt employees. Federal wage and hour laws require that your records show additional information for nonexempt employees. For each employee, you need to retain the information that you use to compute the amount of pay. Basically, if you keep and organize all of the records you create in order to do payroll, you should have what you need. If an employee has earned LINK overtime pay, you need to retain the information necessary to show how much overtime was worked, and how the overtime pay was computed.

Recordkeeping for exempt employees. If you have employees who are classified as exempt under the FLSA, you're required to retain the information you used to determine that each employee is appropriately classified. If your employees qualify as exempt because they're classified as executive, administrative, or professional employees, you must keep records of the total wages paid each pay period, days covered, and the date of payment.

Because these employees aren't paid by the hour, you don't keep track of the number of hours they work. Doing so could make it seem to a wage-hour auditor that you're basing pay on the number of hours worked, which would mean that the employee was not exempt and that you might end up being liable for overtime pay for that employee.

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