Overtime and “exempt Employee” Rules for Virginia Employers February 23, 2011
In Virginia, as with many states, the federal Fair Labor Standards Act(“FLSA") governs overtime wage laws. Whether overtime pay is required depends on (1) whether the employee is covered under FLSA, and if so, (2) whether the employee’s job is “exempt" or “nonexempt." Most jobs are covered under FLSA. Any jobs that are excluded from FLSA are expressly identified and/or governed by other federal labor laws (i.e. Railway Labor Act, Motor Carrier’s Act, etc. . . ).
EXEMPT OR NONEXEMPT
Whether a particular employee’s job is “exempt" or “nonexempt" under FLSA depends on several factors, including how much the employee is paid, how he or she is paid, and the type of work that he or she primarily performs. Although there are a few exceptions, for most employers, an exempt employee is one who is (a) paid at least $455 per week ($23,600 annually); (b) paid on a salary basis; and (c) performs job duties that are “exempt." Most employees must meet all three tests in order to be deemed “exempt."
A common and necessary element among the enumerated exemptions under FLSA is the requirement that the employee be paid on a “salary basis." An employee who is paid on a salary basis is one who is paid a “guaranteed minimum" amount of compensation that he or she can rely on receiving for any workweek in which he/she performs any work. Compensation paid to an employee who is paid on a salary basis receives pay without any reduction based on quality or quantity of the work performed so long as some amount of work is perform by the employee during the work period.
Technically speaking, whether an employee’s wage is expressed in hourly or annual terms is of little significance, although “thinking of an employee as “hourly" is very dangerous as it is an imprecise term that often leads to misunderstandings, misapplication of the law, and claims against the employer. For example, an employees who think of themselves as compensated on an hourly basis commonly assume that they are entitled to overtime pay or “time and ½" for work beyond 40 hours per workweek. An employee who receives a “guaranteed minimum" amount of pay that he or she can count on is a salaried employee. Although each employee, or class of employees, must be evaluated based on each particular circumstance, the manner in which an employee’s salary is actually calculated strongly suggests whether or not an employee is paid on a salary basis. An employee is paid on a salary basis if his or her salary is calculated from an annual amount divided by the number of pay periods in a year. An employee is considered to be a non-salaried employee if his/her pay for a pay period is reduced when he/she works fewer than the normal amount of hours during a pay period.
The following is a partial list of some of the more important “exempt" duty categories. This is not an exhaustive list as the law provides for other categories that you lawyer may determine apply to your employees (e.g., Computer Employee Exemption, Creative Exemption, Outside Sales Exemption, etc.).
Employees who are in management positions meeting certain criteria are exempt under FLSA. In order to qualify for an executive exemption, all of the following criteria must be met:
The employee must be paid at least $23,600 annually on a salary basis.
The employee’s primary duty must be managing the organization or a department or subdivisions of the organization.
The employee customarily and regularly directs the work of at least two or more full time employees.
The employee must have the authority to:
(a) hire or fire other employees, or
(b) suggest and recommend the hiring, firing promotion, demotion or other change of status of the other employees.
Employees whose jobs consist of primarily non-manual work directly related to the management or general business operations of the employer or the employer’s customers are exempt if his/her primary duty includes the exercise of discretion in matters that are of significance to the operation of the employer’s business. To qualify for an administrative exemption, the employee must also be paid on a salary basis and earn at least $23,600 annually.
To qualify for a professional exemption the employee’s primary duty must include work requiring advanced knowledge, mostly intellectual in character and requiring the exercise of discretion and judgment. The advanced knowledge must be one that is customarily acquired through prolonged course of specialized academic study. The advanced knowledge requirement must be in an area of science or learning. The employee must also be paid on a salary basis and earn at least $23,600 annually.
Highly Compensated Employee Exemption
Employees who are paid more than $100,000 in total annual (52 week period) compensation are exempt if the employee’s primary duties include office or non-manual labor, and he or she customarily and regularly performs at least one of the duties of an exempt executive, administrative employee, or professional employee. This exemption applies even of the employee does not meet all the other requirements on the test for an executive, administrative or professional exemption.
The total $100,000 compensation can consist of commissions, nondiscretionary bonuses and other nondiscretionary compensation earned within the one-year period. It cannot include benefits such as employer contribution for health or life insurance, retirement plans, and other benefits.