Executive Exemption under the Fair Labor Standards Act (FLSA)
To meet the executive exemption, an employee has the following requirements:
- primary duty is management of the enterprise or of a customarily recognized department or subdivision;
- customarily and regularly directs the work of two or more employees;
- has authority to hire or fire other employees or whose suggestions and recommendation as to hiring, firing, advancement, promotion or other change of status of other employees are given particular weight; and
- is paid at least $455 a week or $23,660 annually free and clear of board, lodging or other non-cash items.
Primary Duty - Primary duty means the principal, main, major or most important duty that the employee performs. An employee’s primary duty is determined by looking at all the facts, with the major emphasis on the character of the employee’s job as a whole.
Important factors to consider when determining the primary duty include:
- the relative importance of the exempt duties as compared with other types of duties;
- the amount of time spent performing exempt work;
- the employee’s relative freedom from direct supervision; and
- the relationship with the employee’s salary and wages paid to other non-exempt workers for the same kind of nonexempt work.
Employees who spend more than 50% of their time performing exempt work will generally satisfy the primary duty requirement. However, the regulations do not require that exempt employees spend more than 50% of their time performing exempt work.
Management - The primary duty must be management. Management includes activities related to supervising employees such as interviewing, selecting and training of employees; setting and adjusting pay rates and work hours; conducting performance appraisals, handling employee complaints and grievances; and disciplining employees. Other management duties include planning and controlling the budget; monitoring or implement legal compliance measures; providing for the safety and security of employees or property; planning and apportioning work among employees; and other functions related to running or servicing a business.
A “customarily recognized department or subdivision” must have a permanent status and continuing function. To meet this requirement, this does not include a mere collection of employees assigned from time to time to a specific job.
Supervision of other workers - The phrase “customarily and regularly” means a frequency that must be greater than occasional but which may be less than constant. Normally an exempt executive employee must direct the work of other employees at least once a week, but not every day. The phrase “two or more other employees” means that the exempt manager must supervise two full-time employees or equivalent. The exempt executive generally must supervise other employees who work a total of 80 work hours.
Particular weight - An exempt executive employee must have “the authority to hire or fire other employees” or must have his or her suggestions and recommendations as to hiring, firing advancement, promotion or any other change of status be given “particular weight.”
Factors to consider when determining whether an employee’s recommendation are given “particular weight” include, but are not limited to:
- whether it is part of the employee’s job duties to make recommendations;
- the frequency with which recommendations are made or requested (does not include occasional suggestions); and
- the frequency with which the recommendations are relied upon.
Suggestions/recommendations may be reviewed by a higher-level manager. The exempt employee need not have authority to make the ultimate decision.
Concurrent Duties - Concurrent performance of exempt and nonexempt work does not automatically disqualify an employee from exemption.
- Exempt employees generally decide when to perform nonexempt duties and remain responsible for success or failure of business operations.
- Nonexempt employees generally are directed by a supervisor to perform the exempt work or perform the exempt work for defined time periods
For example, an assistant manager can supervise employees, and serve customers at the same time without losing the exemption. In contrast, a relief supervisor or working supervisor whose primary duty is performing nonexempt work on the production line in a manufacturing plant does not become exempt merely because he occasionally has some responsibility for directing the work of other nonexempt production line employees when, for example, the exempt supervisor is on vacation.