Three exempt employee rules your organization needs to know before creating an employee’s status

Written by Eric Ebbert CFP®, MBA

On September 20, 2020

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If you are starting a new business or if your existing business is expanding and taking on employees, you may be wondering how to organize employee status in your organization. There are different ways to organize employment status, and each affects your responsibilities as an employer, such as taxes, incentives and benefits.

You may have heard about companies like Uber wrestling with whether their employees land under nonexempt or exempt employee status, and you might be wondering what exempt status is and if it is right for your business. Join us as we explore what exempt status is and what the rules are for your organization to classify someone as an exempt employee.

What is an exempt employee?

So, what does it mean to be exempt? An exempt employee is classified by the Fair Labor Standards Act (FLSA) as someone who is not eligible for overtime pay or minimum wage. An exempt employee receives salary for the work they perform on a task-by-task basis rather than by hours worked to accomplish the task.

Exempt status can be beneficial for employers who need a team of professionals to accomplish certain tasks but do not need someone to work 40 hours a week and earn overtime for working longer. 

Three exempt employee rules and requirements

The requirements for classifying an employee as exempt can be condensed into three categories:

  1. Salary — Exempt employees must earn a salary instead of an hourly rate. The monthly base payment must be higher than the FLSA minimum regardless of how many hours the employee works per week.

  2. Earnings — Employees must meet the salary threshold of at least $684 per week or $35,568 per year to qualify for exempt status. Employees who earn less than this must be classified as nonexempt.

  3. Duties — Exempt employees must complete job duties. These usually only apply to employees who have high-level responsibilities that can be broken down into one of the following three categories:

    1. Executive — An exempt employee operating as an executive must supervise at least two full-time employees or four part-time employees on a regular basis. They must also be responsible for managing part of the business and be involved in the hiring and delegation process.
    2. Administrative — An administrative exempt employee must perform office or nonmanual work related to business operations or management. They must be in a position in which they can exercise judgment over relevant business decisions without needing to report to another person first.
    3. Professional — Professional exempt employees must perform duties that require specialized education or training. They must have at least a college degree or higher qualifications in their field. This status also applies to employees in creative and artistic fields. 

Talk to a ProVise CFP® professional about managing your finances while you focus on your business

Running a business and managing employees takes a lot of time and hard work. It is easy to let your personal life and finances slip out of priority when you have to focus so hard on your business. At ProVise, we offer the Personal Financial Officer™ (PFO) program to help business owners and executives with managing their personal finances so they can focus on the important aspects of their business without worrying about their own money. 

Our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a financial plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about managing your finances? Contact ProVise today to schedule a complimentary consultation.

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