Does a Salary Really Equal No Right to Overtime Pay?

The payment of overtime wages is controlled by the Fair Labor Standards Act (FLSA). The FLSA states that as a general rule, employees who work more than 40 hours per week must be paid one and a half times their regular rate of pay for all excess hours worked in that week. Many employers and employees believe that as long as they pay or are paid a salary, rather than by the hour, they don’t have to pay or are not entitled to be paid overtime for hours worked in excess of 40 hours per week. This is incorrect.

The source of this confusion is the fact that the first requirement for most employees to be exempt from the overtime requirements of the FLSA is that they be paid by salary. However, once an employer meets this initial salary requirement, they must also meet a threshold amount of pay. This threshold amount of salary has historically been $23,660 annually. Effective December 1, 2016, however, this threshold amount will increase to $47,476 annually for a full-year worker.

Additionally, once an employer meets the threshold amount of salary, the job duties of the particular employee must also meet one of the duties tests pursuant to statute. The three main tests of duties for an employee to meet in order to be exempt from the overtime requirements of the FLSA are the Administrative test, the Executive test and Professional test. Thus, unless an employee’s job duties fall within the required duties of one of these tests, an employee must be paid overtime regardless of whether they are paid by salary.

Besides these three primary categories for exemption from overtime, there are others. These others include a creative professional employee exemption, a computer employee exemption, an outside sales employee exemption, and a highly compensated employee exemption. For specifics on these and other categories for exemption from the FLSA, consult your employment law specialist. But also remember, these duties tests refer to an employee’s actual duties not an inaccurate listing of duties portrayed in an outdated or form job description. Thus, if an employee’s actual duties don’t meet the requirements of one of the duties tests, the employee is entitled to overtime pay.

General Requirements of the Three Primary Duties Tests

The general requirements of the Administrative Duties Test are that 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; and the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

The general requirements of the Executive Duties Test (commonly known as the managerial exemption) are that the employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise; the employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and the employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

The general requirements of the Professional Duties Test (also known as the learned professional employee exemption) are that 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; the advanced knowledge must be in a field of science or learning; and the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.