Does an employer have to pay salaried employees overtime?

July 5, 2012

Recently, a reader of this blog asked the question “How could a salaried employee be exempt under the Fair Labor Standards Act (“FLSA”)?

Good question. Since I have talked about who is covered by the FLSA and who must be paid overtime, it makes sense to discuss some of the ways a salaried employee could be exempt. Exempt in this context generally means that the employer is not required to pay overtime.

The most prominent exemptions are:

Business Owner
It is so simple that it is initially often missed. If you are an employee who owns at least a bona fide 20-percent equity interest in the enterprise in which employed, regardless of the type of business organization, and are actively engaged in its management, you are excluded from the FLSA as an “executive”.

Computer Professionals
An Employee who primarily performs work as a computer systems analyst, programmer, software engineer or similarly skilled work in the computer field. Examples: system analyst, database analyst, network architect, software engineer, programmer.

Executive
An Employee whose primary duty is to manage the business or a recognized department/entity and who customarily directs the work of two or more employees. Also includes individuals who hire, fire or make recommendations that carry particular weight regarding employment status. Examples: executive, director, owner, manager, supervisor.

Administrative
An Employee whose primary activities are performing office work or non-manual work on matters of significance relating to the management or business operations of the firm or its customers and which require the exercise of discretion and independent judgment. Examples: coordinator, administrator, analyst, accountant.

Professional/creative
An Employee who primarily performs work requiring advanced knowledge/education and which includes consistent exercise of discretion and independent judgment. The advanced knowledge must be in a field of science or learning acquired in a prolonged course of specialized intellectual instruction. Examples: attorney, physician, statistician, architect, biologist, pharmacist, engineer, teacher, author, editor, composer, musician, artist.

Commissioned sales employees
An Employee of retail or service establishments are exempt from overtime if more than half of the employee’s earnings come from commissions and the employee averages at least one and one-half times the minimum wage for each hour worked.

Highly Compensated
This is for an employee earning at least $100,000.00 per year, again with a minimum salary of at least $455.00 per week, and performs one of the duties of an exempt executive, administrative, or professional employee.

Outside Sales
This is for your sales positions where the majority of time is off your company premises soliciting sales, customer orders, and contracts. This exemption does not have a minimum salary requirement. So you have the option of having a 100% commissioned outside sales force if you want, without endangering their exempt status.

If an employee meets the requirements under one of these exemptions, it is possible that the employee will be considered “exempt” under the FLSA from the overtime pay requirements.

However, the consequences of an employer not paying overtime when it is required can be catastrophic. Check with an attorney before you assume an employee is exempt.

If would like to hone in on the specific details of your case, please feel free to email me (sjr@shawnjroberts.com).

Shawn Roberts

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I write about and try to answer practical Oklahoma legal questions. I tend to focus on estate planning and business issues. I make a living as an attorney working for Resolution Legal Group in Oklahoma City.

I am husband to Amy and the father of Sam and David. We live exactly in the path where the “wind comes sweeping down the plains.”