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Fact Sheet:
Exemption for Administrative Employees Under the Fair Labor Standards
Act (FLSA)
This fact sheet provides general
information on the exemption from minimum wage and overtime pay provided
by Section 13(a)(1) of the Fair Labor Standards Act as defined by
Regulations, 29 CFR Part 541.
The FLSA requires that most employees in
the United States be paid at least the federal minimum wage for all
hours worked and overtime pay at time and one-half the regular rate of
pay for all hours worked over 40 hours in a workweek.
However, Section 13(a)(1) of the FLSA
provides an exemption from both minimum wage and overtime pay for
employees employed as bona fide executive, administrative, professional
and outside sales employees. Section 13(a)(1) and Section 13(a)(17)
also exempt certain computer employees. To qualify for exemption,
employees generally must meet certain tests regarding their job duties
and be paid on a salary basis at not less than $455 per week. Job
titles do not determine exempt status. In order for an exemption to
apply, an employee’s specific job duties and salary must meet all the
requirements of the Department’s regulations.
See other fact sheets in this series for
more information on the exemptions for executive, professional,
computer, and outside sales employees, and for more information on the
salary basis requirement.
Administrative Exemption
To qualify for the administrative
employee exemption, all of the following tests must be met:
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The employee must be compensated on
a salary or fee basis (as defined in the regulations) at a rate not
less than $455 per week;
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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
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The employee’s primary duty includes
the exercise of discretion and independent judgment with respect to
matters of significance.
Primary Duty
“Primary duty” means the principal, main,
major or most important duty that the employee performs. Determination
of an employee’s primary duty must be based on all the facts in a
particular case, with the major emphasis on the character of the
employee’s job as a whole.
Directly Related to Management or
General Business Operations
To meet the “directly related to
management or general business operations” requirement, an employee must
perform work directly related to assisting with the running or servicing
of the business, as distinguished, for example from working on a
manufacturing production line or selling a product in a retail or
service establishment. Work “directly related to management or general
business operations” includes, but is not limited to, 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.
Employer’s Customers
An employee may qualify for the
administrative exemption if the employee’s primary duty is the
performance of work directly related to the management or general
business operations of the employer’s customers. Thus, employees acting
as advisors or consultants to their employer’s clients or customers — as
tax experts or financial consultants, for example — may be exempt.
Discretion and Independent Judgment
In general, the exercise of discretion
and independent judgment involves the comparison and the evaluation of
possible courses of conduct and acting or making a decision after the
various possibilities have been considered. The term must be applied in
the light of all the facts involved in the employee’s particular
employment situation, and implies that the employee has authority to
make an independent choice, free from immediate direction or
supervision. Factors to consider include, but are not limited to:
whether the employee has authority to formulate, affect, interpret, or
implement management policies or operating practices; whether the
employee carries out major assignments in conducting the operations of
the business; whether the employee performs work that affects business
operations to a substantial degree; whether the employee has authority
to commit the employer in matters that have significant financial
impact; whether the employee has authority to waive or deviate from
established policies and procedures without prior approval, and other
factors set forth in the regulation. The fact that an employee’s
decisions are revised or reversed after review does not mean that the
employee is not exercising discretion and independent judgment. The
exercise of discretion and independent judgment must be more than the
use of skill in applying well-established techniques, procedures or
specific standards described in manuals or other sources.
Matters of Significance
The term “matters of significance” refers
to the level of importance or consequence of the work performed. An
employee does not exercise discretion and independent judgment with
respect to matters of significance merely because the employer will
experience financial losses if the employee fails to perform the job
properly. Similarly, an employee who operates very expensive equipment
does not exercise discretion and independent judgment with respect to
matters of significance merely because improper performance of the
employee’s duties may cause serious financial loss to the employer.
Educational Establishments and
Administrative Functions
The administrative exemption is also
available to employees compensated on a salary or fee basis at a rate
not less than $455 a week, or on a salary basis which is at least equal
to the entrance salary for teachers in the same educational
establishment, and whose primary duty is performing administrative
functions directly related to academic instruction or training in an
educational establishment. Academic administrative functions
include operations directly in the field of education, and do not
include jobs relating to areas outside the educational field.
Employees engaged in academic administrative functions include: the
superintendent or other head of an elementary or secondary school
system, and any assistants responsible for administration of such
matters as curriculum, quality and methods of instructing, measuring and
testing the learning potential and achievement of students, establishing
and maintaining academic and grading standards, and other aspects of the
teaching program; the principal and any vice-principals responsible for
the operation of an elementary or secondary school; department heads in
institutions of higher education responsible for the various subject
matter departments; academic counselors and other employees with similar
responsibilities. Having a primary duty of performing administrative
functions directly related to academic instruction or training in an
educational establishment includes, by its very nature, exercising
discretion and independent judgment with respect to matters of
significance.
Highly Compensated Employees
Highly compensated
employees performing office or non-manual work and paid total annual
compensation of $100,000 or more (which must include at least $455 per
week paid on a salary or fee basis) are exempt from the FLSA if they
customarily and regularly perform at least one of the duties of an
exempt executive, administrative or professional employee identified in
the standard tests for exemption.
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