FLSA Exempt and Nonexempt Defined
The Fair Labor standards Act (FLSA) is best known as the law determining the exempt or non-exempt status of jobs and overtime requirements. The law covers minimum wage, overtime pay, hours worked, recordkeeping, and youth employment standards for employees both in the private sector and in federal, state, and local governments. The Fair Labor Standards Act (FLSA) is administered by the Wage and Hour Division of the Department of Labor (DOL). For a full compliance overview of the federal law, refer to the DOL Wage and Hour Division's FLSA assistance page.
- Overtime Defined
- The Exemption Test
- Compensation Department Responsibilities
- Overtime Administration at the U of M
- Multiple Appointments Within and Across Employee Groups
- Overtime FAQs
Overtime is work time in excess of 40 hours per work week on one or more University jobs. Work time is defined as time scheduled for employees to be on work duty and time spent on authorized paid leaves of absence such as vacation leave, sick leave, comp time off, paid military leave, etc. In regard to overtime, employees are divided into two groups:
- Exempt: Employees primarily performing work that is not subject to overtime provisions of the Fair Labor Standards Act. Overtime pay is not required by FLSA for exempt employees; however, the University chooses to pay overtime to exempt Non-V Class employees.
- Nonexempt: Employees primarily performing work that is subject to the overtime provisions of the Fair Labor Standards Act. Overtime pay is required.
Overtime pay is regulated by:
- The Federal Fair Labor Standards Act (FLSA), which covers all University employees.
- The Minnesota Fair Labor Standards Act (MFLSA), which covers all University employees.
- Civil Service rules, which require overtime pay for employees in Non-V job classifications. (See Civil Service Rule 10, Section 2.)
- Collective bargaining agreements require overtime payment for employees in job classifications covered by AFSCME and Teamster union contracts.
The Fair Labor Standards Act uses the terms exempt and nonexempt to describe work that is included (nonexempt) or not included (exempt) in the act’s overtime and recordkeeping provisions. The act requires that overtime (payment for more than 40 hours of work in one week) be paid to employees performing nonexempt work. The act doesn't require that time and a half be paid to employees performing exempt work. Five primary exemption tests are used to determine if a position is exempt from the overtime payment requirement :
- Executive test
- Administrative test
- Professional test
- Outside sales test
- Computer test
The act provides that public-sector employees performing nonexempt work may earn comp time (time off instead of overtime pay). The act designates all work as nonexempt (overtime required) until the employer completes an exemption test to document the reasons overtime is not required.
FLSA Exemption Test Summaries
According to current FLSA law, employees must earn at least $455 a week ($23,660 a year) to be exempt from overtime rules under all tests. Employees can also be exempt if they make over $100,000 a year (at least $455 a week as a salary) and regularly meet the criteria in one of the other exemption tests. Here are the exemption tests and their criteria:
- Executive Test
- Along with (1) passing the salary threshold, positions qualifying for exemption under this test must have a (2) primary duty of “managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise”, (3) “customarily and regularly direct the work of at least two or more other full-time employees or their equivalent,” and (4) must have the authority to hire or fire employees, or recommendations are given particular weight. A separate qualification for exemption under this test is for business owners who own at least 20% of the organization and are actively engaged in the management.
- Administrative Test
- Along with (1) passing the salary threshold, positions qualifying for exemption under this test must have a primary duty of (2) “performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers”, and the primary duty includes (3) “the exercise of discretion and independent judgment with respect to matters of significance”. In an educational institution an employee qualifies for exemption if the salary threshold is satisfied, as well as the primary duty is “performing administrative functions directly related to academic instruction or training in an educational establishment”.
- Professional Test
- Along with (1) passing the salary threshold, positions qualifying for exemption under this test must have a primary duty of (2) “performing work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the exercise of discretion and judgment”, which requires advanced knowledge in a field of science or learning which can be “customarily acquired by a prolonged course of specialized intellectual instruction”. Exemption can also be achieved through the practice or law or medicine by holding a valid license to practice law or medicine and is actually engaged in such a practice or engaged in an internship or resident program for the profession. Exemption can also be achieved as a creative professional, with a primary duty of “performing work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.” Within this exemption test, Teachers in an educational established, with a primary duty of teaching, tutoring, instructing, or lecturing are considered exempt.
- Outside Sales Test
- To pass this test employees must be “regularly engaged away from the employer’s place or places of business”, and the primary duty must consist of marking sales and obtaining orders or contracts for services, which will be paid for by the customer.
- Computer Test
Along with (1) passing the salary threshold, positions qualifying for exemption under this test must be employed as (2) “computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field” performing these type of responsibilities:
- The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
- The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, 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;
- A combination of the aforementioned duties, the performance of which requires the same level of skills.
The exempt or non-exempt status of a job is a common question for managers. One of the responsibilities of the Compensation department is the interpretation and enforcement of exemption at the University.
The Compensation department reviews all staff job postings and reclassification requests to determine whether a position is exempt or non-exempt from overtime regulations. It is the responsibility of the Office of Human Resources to establish and administer policies and procedures that comply with the FLSA.
The University’s Civil Service Rules and union contracts require premium pay (e.g., time and one half) in instances where it is not required by the Fair Labor Standards Act, for example, paying time and one half to employees who work on a holiday. Payments must be administered according to the Civil Service Rules and union contract provisions.
- Overtime is calculated by the work week not the pay period.
- All overtime must be approved by the appropriate responsible administrator prior to being worked. Failure to obtain approval may result in disciplinary action.
- Academic staff on a salaried appointment are not eligible for overtime payments.
- AFSCME and Teamster union contracts and administrative interpretations have information on overtime.
- How do you calculate overtime for employees in non-exempt job classifications?
- FLSA requires that overtime be calculated on the employee’s regular rate of pay, by multiplying 1.5 the regular rate of pay by the number of hours over 40 in the work week. The employee’s regular rate of pay includes all remuneration for employment paid (e.g., hourly rate or comp rate) to or on behalf of the employee. The FLSA requires the inclusion in the regular rate of such extra premiums as shift differentials and nondiscretionary lump sum payments (e.g., stability or career bonus payments). The University utilizes the higher of applicable hourly rates to calculate overtime payments. FLSA excludes some payments from the regular rate of pay (e.g., discretionary bonus payments, reimbursement for travel expense, contributions to retirement funds, and health insurance).
- How does travel affect overtime?
Employees in non-exempt job classifications who travel on University business are paid in the following manner:
- One-Day Assignments in another City:Non-exempt employees who regularly work at a fixed location (e.g., Twin Cities campus) but may be required to travel to another city (e.g., Duluth) for a one-day assignment (but not gone overnight) should be compensated for the hours spent in travel. Regular meal time is deducted as well as any “home-to-work” time which may be included.
- Travel of More Than One Day:Employees working in non-exempt job classifications whose positions require them to travel and be gone overnight should be compensated for any travel time that occurs during their regular work hours occurring any day of the week. For example, if an employee regularly works 9:00 a.m. to 5:00 p.m. Monday through Friday, travel time during these hours is considered work time whether it occurs on a week day, Saturday, or Sunday. Time spent in travel outside of regular work hours is not considered work time.
- How is overtime calculated for V-Class, Part-Time Employees?
- V-class part-time employees shall be paid or receive compensatory time off at the straight-time rate for all hours worked in excess of their appointment percentage, up to 40 hours. They will be paid at one and a half times (hourly rate of pay or in comp time off) for all work over 40 hours in a week.
- How are payments calculated when temporarily filling in for a V-Class positions?
- Whenever an employee is temporarily filling in for a V-class position (through a $/hour augmentation), the department has the option of either paying the time and one half for any overtime hours worked, or granting the employee the extra half day vacation allowance per month for the duration of the temporary augmentation.
- How is overtime paid with multiple appointments?
University employees may hold more than one appointment (i.e., multiple appointments). There is no limit to the number of appointments an employee may hold either simultaneously or consecutively. Appointments can be held, simultaneously, in more than one employee group. Employees can simultaneously hold appointments in both exempt and non exempt job classifications.
Generally the overtime and record keeping provisions of the Fair Labor Standards Act do not apply to employees working in exempt job classifications. However, overtime and record keeping provisions apply when an employee simultaneously holds appointments in exempt and nonexempt job classifications.
The Multiple Appointments Within and Across Employee Groups matrix explains overtime pay requirements for employees with multiple appointments.
- Do technical consultants receive overtime payments?
- Individuals employed as technical consultants (job code 0011) are not eligible for time and half. This exempt classification is not covered by the Civil Service Rules.
- Does on-call time count for overtime?
- Hours spent in on-site (on the employer’s premises), on-call status count as regular hours worked and also are counted towards overtime (if the total hours worked that work week exceed 40). However, a different base pay rate, not lower than the federal minimum wage, may be established for on-site, on-call hours.
- Does paid time-off count for overtime?
- Overtime worked in a work week in which an employee has taken paid time off (vacation, sick leave, or paid holiday) is compensated at the appropriate premium rate. For example, a nonexempt employee that works three extra hours on each of two evenings a week during which a scheduled holiday falls should receive overtime pay for the six hours. The University practice is to count paid time for hours not worked toward the 40-hour work week requirement.
- What is comp time?
FLSA allows most University employees to choose comp time at one and one half times for each hour worked over 40 in a week rather than a cash payment. The FLSA limits accrual of comp time at 240 hours or 160 hours of actual overtime hours worked for all non-exempt employees. Police, emergency response, and seasonal employees have a maximum accrual of 480 hours of comp time or 320 hours of actual overtime hours worked.
Units have full discretion to: Reasonably restrict the amount of comp time that can be accumulated (with a maximum of 240 hours or 160 hours of actual time worked for all nonexempt employees) and the length of time a comp time-off balance can be carried. Units can establish a rule that employees use comp time before using vacation time.
- How is comp time paid out?
Cash payments for accrued comp time can be made at any time and must be paid at the regular rate earned by the employee at the time the employee receives payment. If an employee is transferring or moving from one unit to another unit, the unit where the employee accrued the comp time off must pay it out.
Upon termination, an employee must be paid for unused comp time figured at the average regular rate received by such employee during the last three years of employment (immediately prior to termination) or the final regular rate received by such employee, whichever is higher.
- How is overtime calculated for dual appointments?
- Overtime pay of one and one half times is required for hours exceeding 40 hours in a work week in the nonexempt appointment. Overtime pay is calculated on the hourly rate of the higher paying appointment (base pay plus an augmentation). No lump sum payments are permitted.