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Exempt Employees

Exemption from Minimum Wage and Overtime Requirements

Under the federal Fair Labor Standards Act, employers must pay a minimum wage of $5.75 per hour to all workers and overtime pay to those who work in excess of 40 hours per week. However, the law exempts certain kinds of jobs from minimum wage and overtime requirements if they meet special criteria established by the U.S. Department of Labor (DOL). Outside sales personnel are among those classified as exempt from federal minimum wage and overtime requirements (FLSA Sec. 213(a)(1)). Certain retail sales personnel paid on commission are exempt from the overtime requirements whether they work inside or outside (FLSA Sec. 207(i)).

Exemption Occupations

White-collar exemptions. FLSA exempts broad categories of “white-collar” jobs from minimum wage and overtime requirements if they meet certain tests regarding job duties and responsibilities and are paid a certain minimum salary. These categories include executives, administrative employees, professional employees, and outside sales personnel. An employer should periodically review the duties of exempt employees to ensure that they still qualify for exempt status, especially if the company has undergone restructuring or downsizing.

Motor Carrier Act (MCA) exemption. Under the MCA exemption to FLSA, the overtime provisions of FLSA do not apply to motor carriers such as truck drivers and their helpers that operate in interstate commerce. The exemption is not limited to those that ship large amounts of property or ship property as their principal business. A U.S. appellate court has held that the exemption extends to field engineers who carry tools, parts, and equipment in their private cars on interstate trips to install, maintain, and repair computers (Friedrich v. CableData, 974 F. 2d 409, CA-3, 1992). However, such personnel are still covered by the equal pay, minimum wage, and recordkeeping requirements of FLSA.

Data processing personnel. Workers in computer-related jobs are exempt if they meet the salary and duties requirements of the administrative, executive, or professional exemption. These employees are specifically exempt if they are either paid on a salary basis or paid an hourly rate of $27.63 and also perform the following jobs:

The application of systems analysis techniques and procedures to determine hardware and software specifications
The design of computer systems based on user specifications; and/or
The creation or modification of computer programs based on system design specifications or related to machine operating systems.

Employees who operate computers or who are engaged in the manufacture, repair, or maintenance of computer hardware do not qualify for exemption and must be paid overtime under FLSA.

Outside Sales Exemption

Outside sales representatives are exempt from both minimum wage and overtime requirements. An employee is classified as an outside sales representatives if the job meets the following specifications:

The individual is employed for the purpose of selling goods or obtaining contract orders for services to be performed by others or the use of facilities.
The individual customarily and regularly spends work time away from the employer's place of business. (DOL uses an 80 percent test.) Any fixed site or branch office, whether in a home or an actual office, is considered as the employer's place of business regardless of its ownership; sample rooms in hotels are considered exceptions
The individual spends at least 80 percent of each workweek engaged in exempt work. (Exempt work includes not only actual sales but all activities by the individual directed toward securing his or her own sales.)

Special Situations

"Professional" and "administrative" sales personnel. Some sales and sales engineering positions could be classified as exempt from overtime requirements as administrative or professional positions, but they would have to meet all of the requirements for those categories, including minimum salary levels. However, if a position qualifies for the sales personnel exemption, there is no minimum salary requirement, even though it might also qualify for some other exemption.

"Sales-service" positions. Job categories such as sales-repair or sales-service would ordinarily not be deemed exempt if more than 20 percent of the employee's time were spent on post-sales activities

Commissioned Retail Exemption

Employees of a retail or service establishment are exempt from the overtime requirements if their regular rate of pay is more than 1.5 times the minimum wage and more than half of their compensation during a representative period of at least one month is commissions on goods or services. This exemption applies to inside as well as outside sales personnel. For an establishment to be eligible to utilize this exemption, at least 75 percent of its annual dollar volume of sales must be not for resale and the business must be recognized as retail or service in the particular industry.

Other occupations exempt from overtime requirements include:

Baby-sitters employed on a casual basis
Companions
Live-in domestic workers and those not covered by the Social Security Act nor employed for more than 40 hours per week by one employer
Those employed to perform services in a foreign country
Employees of gas stations with annual sales of less than $250,000
Homeworkers making evergreen wreaths
Motor vehicle sales and service personnel
Employees of small loggers
Maple sap employees
Employees of certain country elevators
Employees of certain small retail and service establishments
Employees of certain amusement or recreational establishments
Employees of certain small newspapers
Announcers and editors at certain small broadcast stations
Switchboard operators with small telephone com
Seafarers on foreign vessels
Employees in fishing operations
Employees of motor carriers, airlines, and railroads
Taxi drivers
Certain drivers and helpers on local delivery
Substitute parents for institutionalized children
Local transit workers on charter work
Movie theater employees
Outside buyers of poultry and dairy products
Certain employees under collectively bargained guaranteed annual wage plans
Bulk or wholesale petroleum distributors

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