What is an Exempt Employee? Definition and easy guide

Remotepedia
Panther
September 10, 2021

Definition of an exempt employee

Most employees––especially those you pay hourly––are entitled to things like minimum wage and overtime pay. Exempt employees are not. The exempt status is a category set by the Fair Labor Standards Act (FLSA) to make it easier for you to hire people for salaried roles. 

But you can’t just exempt any employee: There’s a system with many requirements, mostly on how much you’re paying and the individual employee’s responsibilities within your company. We’ll cover the details below.

Exempt Employee Cheat Sheet: What you should know

  • You need to pay at least $684 per week. Most of the exempt employee categories require paying your workers a salaried wage that’s at least $684 per week. 
  • There are five exempt categories. They are: Executive, Administrative, Professional, Computer, and Outside Sales. We’ll break each down in the section below. But many employees today fit into these categories. For example: If you run a tech company, the majority of your employees likely qualify for exempt status.

By the way: If you’re still trying to work through the contractor versus employee dilemma, learn the right way to classify employees.

How to know if your employees are exempt

The guidelines on exempt employees are long and it’s easy to get confused. Let’s walk through each of the five categories for exempt employees. As you read through, treat it as a checklist: Your employee needs to check every box in one category to qualify for exempt status.

The terms get a little technical below, but we’ve broken them down and given examples so you don’t get lost in the legal jargon.

Executive employees

This refers to high-level employees in a company. Requirements to be exempt:

  • The employee must be paid on a salary basis of at least $684 per week.
  • The employee’s primary job must be managing the company––or managing a subdivision of it.
  • The employee must have the power to hire and fire employees. If they don’t, they at least need to have substantial sway in the process.
  • The employee must direct the work of at least two other full-time employees (or their equivalent).

If an executive at your company checks all the above boxes, they are an exempt employee.

Administrative employees

This can include HR and customer satisfaction employees. Requirements to be exempt:

  • The employee must be paid on a salary basis of at least $684 per week.
  • The employee’s primary job must be the performance of non-manual work that directly relates to management or business operations of the employer or employer’s customers.
  • The employee’s primary job also includes exercise of discretion and judgement on important company matters.

If someone at your company checks all of the above boxes, they are an exempt employee.

Professional employees

There are two types of professional employees: Learned professionals and creative professionals. 

Requirements for learned professionals to be exempt:

  • The employee must be paid on a salary basis of at least $684 per week.
  • The employee’s specialty of knowledge must be in a field of science or learning.
  • The knowledge is something that’s usually obtained by a long course of intellectual instruction (think someone who went to college for engineering).
  • The employee’s primary job involves performing work that requires advanced knowledge. This knowledge has to be intellectual in nature and is something that requires judgment and discretion.

Requirements for creative professionals to be exempt:

  • The employee must be paid on a salary basis of at least $684 per week.
  • The employee’s primary job is doing work that involves imagination, invention, originality, or talent in a commonly-recognized field of artistic or creative focus (think designers or writers).

Computer employees

Yes, “computer employees” is just referring to people who work with computers. But not just anyone: This is referring to people who know how to code. Requirements for computer employees to be exempt:

  • The employee must be paid on a salary basis of at least $684 per week.
  • The employee must work as a software engineer, computer systems analyst, computer programmer or something similar.
  • The employee’s responsibilities should include things like:
  • Application of system analysis techniques related to hardware and software specifications.
  • Design and creation of computer systems and programs.
  • Coding work related to operating systems.
  • A combination of the duties above that requires the same level of skills.

The official language is especially confusing here, but it’s likely that if you have an employee who works with code––like a frontend developer or IT person––they’ll probably fall into this category.

Outside sales employees

This is the most unique category, since there are no restrictions on salary. But you’ll see why in just a minute––salary designations wouldn't make too much sense. Requirements for outside sales employees to be exempt: 

  • The employee’s duties must be making sales or obtaining orders (or contracts) for services or the use of facilities.
  • The employee must usually be away from the employer’s place of business (hence the term ‘outside sales’).

If you’ve got an outside sales employee who fits the above description, they’re an exempt employee.

The rules aren’t the same everywhere

Yes, there are more rules. Because like the minimum wage, federal law only sets the baseline. After that, states can decide what they want to do. For example, in New York, the exempt employee salary threshold is $1,125 per week (instead of $684). So before hiring anyone, make sure to research the rules of the state they live in.

It changes further when you hire globally. The rules on this page only apply to people working in the United States. If you want to hire someone in Peru, for example, you’ll need to research an entirely new set of compliance rules.

Hiring globally can be a massive pain––that’s why we started Panther. We do all the legwork on compliance and subsidiaries: You can focus on finding the talent that you want, all across the globe. If global hiring is completely uninteresting to you, don’t click this link.