All employees are either “exempt” or “non-exempt” under the North Carolina Wage and Hour Act and the Fair Labor Standards Act (FLSA). Non-exempt employees must be paid minimum wages and overtime compensation while non-exempt employees do not need to be paid overtime, and depending on the exemption, minimum wage. Contrary to popular belief, just because an employee is paid a salary does not mean the employee is not owed overtime. Here we discuss employee exemptions under the FLSA and what they mean for you.
Federal law generally requires hourly workers receive overtime at a rate of not less than 1.5 times the employee’s regular hourly rate of pay. For example, an employee paid $20 per hour must be paid $30 per hour for all hours worked over 40 in a given week. When non-exempt workers are paid on any basis other than hourly (for example, salary, commissions, or piece-rate), the employer must calculate that employee’s “regular rate”. This can be a difficult inquiry depending on how an employee is compensated.
Exempt employees do not need to be paid overtime compensation for hours worked over 40 per workweek. There are many exemptions to overtime and minimum wage requirements under North Carolina and federal law. The most common exemptions are the: 1) Executive exemption; 2) Administrative Exemption; 3) Learned Professional Exemption; 4) Outside Sales Exemption; 5) Creative Professional Exemption; 6) Highly Compensated Employees; 7) Computer-Related Professional Exemption; and 8) Retail Establishment Inside Sales Employee. Contrary to popular belief, a salaried position does not mean that the position is automatically exempt.
To qualify for the executive exemption, all of the following must be true:
- The employee is paid a salary of at least $455 per week;
- The employee’s primary role is managing the overall business or a commonly recognized department or subdivision;
- The employee regularly directs the work of at least two employees; and
- The employee has authority to hire or fire other employees, or his or her opinion weighs heavily in those decisions.
To qualify for the administrative exemption, all of the following must be true:
- The employee is paid a salary of at least $455 per week;
- The employee’s primary role is to perform office or non-manual work directly related to the management or general operations of the business or its customers; and
- The employee’s primary duties call for the exercise of discretion and independent judgment regarding matters of significance.
For the learned professional exemption to apply, all of the following must be true:
- The employee is paid a salary of at least $455 per week on a fee or salary basis;
- The employee’s primary role is to perform work requiring “advanced knowledge;”
- The employee’s advanced knowledge must be in a field of science or learning; and
- The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
Under the creative professional exemption, both of the following must be true:
- The employee is paid at least $455 per week on a fee or salary basis; and
- The employee’s primary role is performing work that requires invention, imagination, originality or talent in a recognized field of artistic or creative endeavor (this exemption is generally for employees working in music, writing, acting or the graphic arts).
For the computer-related professional exemption to apply, both of the following factors must be true:
- The employee is paid at least $455 per week on a fee or salary basis, or at least $27.63 an hour.
- The employee’s primary role is to:
- conduct analysis and consult with users to determine hardware, software or system requirements;
- design, develop, document, analyze, create, test or modify computer systems or programs based on design specifications;
- design, document, test, create or modify computer programs related to machine operating systems; or
- A combination of these duties, requiring the same level of skills.
Highly Compensated Employees
The Department of Labor defines “highly compensated employees” as employees who perform office or non-manual work and whose total annual compensation equals $100,000 or more (with at least a salary of $455 per week) and the employee must regularly perform at least one of the duties of an exempt executive, administrative or professional employee as explained above.
Outside Sales Exemption
For an employee to be exempt as an outside sales employee, the following must be true:
- The employee’s primary role is to make sales or obtain orders or contracts for paid services; and
- The employee regularly performs his or her primary duties away from the employer’s place(s) of business.
Importantly, if an employee is exempt under the outside-sales exemption, there is no minimum wage or minimum pay requirement. This means that an outside-sales employee has the potential to work for nothing!
Retail Establishment Sales Exemption
As a general rule, inside salespersons are not exempt and must be paid overtime. However, a limited exception exists for commission-based salespersons if all of the following are true:
- The employee works at a retail establishment (meaning 75% of the business’ gross annual revenues must be sales to an end user as opposed to being a wholesale);
- The employee regularly receives more than half of his or her compensation from commissions; and
- The employee receives at least 1.5 times the minimum wage for all hours worked.
Employers wrongfully violating the Fair Labor Standards Act or the North Carolina Wage and Hour Act’s minimum wage or overtime requirements may subject an employer to heavy penalties, including liquidated damages (essentially “doubling” an employee’s owed wages) as well as the payment of attorneys’ fees.
Representation for Employers and Employees
The attorneys at Maginnis Howard assist both employers and employees throughout North Carolina with wage and hour compliance. Our firm generally takes employment law cases on a contingency basis. That means you don’t owe anything unless we recover compensation for you. To discuss employee exemptions under the FLSA contact Wage Attorney Karl S. Gwaltney at 919.480.4067 or through our contact page.