How to Classify an Employee Under the Fair Labor Standards Act (FLSA)

Classifying an employee as exempt or nonexempt from the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA) is among the most important tasks that employers must perform. Every year, thousands of lawsuits are filed by employees who allege they were misclassified, and they often win millions of dollars in back pay and fees.

There are specific steps to follow for determining whether an employee qualifies for a particular exemption, but the general process of employee classification is roughly the same for all of the exemptions. Follow these steps to classify an employee under the FLSA and consult with your FrankAdvice HR Consultant as needed.

Step 1: Audit the Employee's Job Duties

The first step in classifying an employee under the FLSA is to audit the employee's job duties. The goal is to obtain the most accurate account of the duties the employee actually performs, not the duties in the employee's job description or even the duties the employee is supposed to perform. Techniques that can help employers in this task include:

• Observing the employee in action;
• Reviewing the employee's job description with the employee, having the employee correct any errors and asking the employee to acknowledge in writing that the job description is accurate and up to date; and
• Interviewing the employee's manager, subordinates and/or colleagues about the employee's job duties.

Step 2: Determine Which Duty Is "Primary"

Once the employer has a firm handle on the employee's many job duties, it is time to determine which of them are his or her primary duty within the meaning of the FLSA. The proportion of time an employee spends on a particular duty is generally a good indicator; a duty that occupies 50 percent or more of the employee's time will generally constitute a primary duty. However, exempt work that occupies less than half of an employee's time can still qualify as his or her primary duty if:

• It is more important than the employee's other duties;
• The employee is relatively free from supervision; and
• The employee is paid more than other employees who do not perform exempt work.

Employers also should bear in mind that a combination of exempt duties can constitute an employee's primary duty.

Step 3: Decide Which Exemption May Apply

The FLSA includes a variety of minimum wage and overtime exemptions. The most common exemptions are for:

• Executives who manage a business or a department and direct the work of at least two employees, from CEOs down to middle managers and even other types of employees, such as chefs or convenience store managers;
  
• Administrators who use discretion and independent judgment to help run significant business functions, such as taxes, finance, accounting, budgeting, auditing, insurance, advertising, marketing, HR, employee benefits and more;
  
• Learned professionals like doctors, attorneys, accountants, engineers, architects, pharmacists and teachers who perform work requiring advanced knowledge in a field of science or learning that is customarily acquired through a prolonged course of specialized intellectual instruction;
  
• Creative professionals like actors, musicians and certain journalists who perform work in a recognized field of artistic or creative endeavor that requires invention, imagination, originality or talent;
  
• Computer employees who carry out high-level computer work that goes beyond normal help desk or IT work;
  
• Outside salespersons who regularly make sales away from their employer's place of business; and
  
• Commissioned salespersons working in a retail or service establishment.

There also are several niche exemptions that apply to more narrow groups of employees, such as transportation employees, farmers and other agricultural employees, employees of seasonal and recreational establishments, domestic companions and others.

Step 4: Determine if the Employee Qualifies for the Exemption

Once the employer has decided which exemption may apply, it should carefully review all of the relevant requirements. If the employee does not qualify for an exemption, he or she must be classified as nonexempt. Nonexempt employees must be paid at least the minimum wage for all hours worked and typically must be paid time-and-a-half overtime for all hours worked beyond 40 in a workweek.

Step 5: Confirm That the Employee Also Is Exempt Under State Requirements

Some employees may qualify for an exemption from the federal FLSA's minimum wage and overtime requirements, but not qualify for exemption from their state's minimum wage and/or overtime requirements. The employer should carefully review state employee classification requirements to ensure there is no conflict.

An employer should document all of the factors that support its classification decisions, preferably in a file dedicated to the employee in question. For instance, a job description can show that the employee exercises discretion and independent judgment. Having the employee sign off on these documents can help support the classification decision as well.