Exempt employee status is important for small businesses.

The Fair Labor Standards Act (FLSA), administered by the Wage and Hour Division of the Department of Labor (DOL), is the statute that dictates whether employees are classified as either exempt or nonexempt with regards to their respective job responsibilities and overtime requirements. The FLSA outlines a broad range of workplace standards including minimum wage, overtime compensation, hours worked, record keeping and youth employment standards for workers in both the public and private sectors. This article will focus on the distinction between exempt and nonexempt employees.

The main distinction between exempt and nonexempt employees is that nonexempt roles are afforded certain protections per the FLSA. While the law has changed since it was implemented in 1938, one aspect has remained the same: employers are required to correctly classify their employees or risk expensive noncompliance penalties.

Exempt Employees Defined

Exempt employees under the FLSA are required to be paid a salary above a minimum threshold and fulfill certain administrative, professional, executive, computer, or outside sales functions. The DOL has issued a duties test that can assist employers in determining which of their employees satisfy these exemption prerequisites. Employers are not obligated to pay exempt employees for overtime.

Nonexempt Employees Defined

Nonexempt workers are typically paid on an hourly basis. Non-exempt employees are therefore entitled to minimum wage protections and additional compensation for overtime hours worked more than 40 hours per week.

FLSA Wage & Hour Standards

The FLSA sets out the federal minimum wage, overtime, recordkeeping, and youth employment details; however, New York (and many other states) have promulgated their own wage and hour laws. In such instances, the DOL mandates that employers must apply the minimum wage or overtime rate that is most beneficial to the worker. For New York, the minimum wage is scheduled to increase annually on December 31 until it reaches $15.00 per hour statewide. The rate of annual increase is dependent on the size, location and, in some instances, industry of the employer. Presently, New York City, Long Island and Westchester employers of all sizes, are required to pay their workers a minimum hourly wage of $15. The remainder of New York State has a minimum $13.20 per hour minimum wage.

Exemption Test Breakdown

In order to determine if a worker should be considered exempt, the FLSA utilizes five main exemption tests. The employer bears the burden of proof, meaning that all work is considered nonexempt until an employer accurately completes one of the following exemption tests and appropriately documents why they are not obligated to pay the employee overtime.

Executive Test (Sample roles: CEO, Controller, VP, Director)

Positions considered exempt via the Executive test must include a primary role of managing the organization, or a verifiable department or subdivision of the business, in addition to passing a salary threshold. Employees must meet the following criteria to qualify for Executive FLSA exemption:

• Routinely compensated a predetermined salary that is not contingent on the quality or quantity of work performed;

• Earn either over $58,500 annually (NYC, Long Island, Westchester) or over $51,480 annually (rest of NYS);

• Main responsibilities are comprised of management of the entity or a subcategory of the entity;

• Routinely directs the work of two or more full-time employees or an equivalent (e.g., one full-time and two half-time employees); and

• Possesses hiring/firing authority or has ability to provide input regarding hiring/firing.

Administrative Test (Sample roles: Manager, Supervisor, Administrator) 

Covers workers who meet the following criteria:

• Routinely compensated a predetermined salary that is not contingent on the quality or quantity of work performed;

• Earn either over $58,500 annually (NYC, Long Island, Westchester) or over $51,480 annually (rest of NYS);

• Main responsibilities are comprised of fulfilling office or non-manual tasks directly associated with the management of general business operations of the employer or customers; and

• Work encompasses the exercise of discretion and independent judgment with significant work-related matters.

Professional Test (Example Roles: Accountant, Nurse, Engineer, Composer, Singer)

         Learned Professional Test

  • Main job responsibilities are comprised of the performance of work requiring advanced knowledge (i.e., beyond GED level) and is mainly intellectually-based;
  • Earn over $35,568 annually (throughout all of NYS);
  • The advanced knowledge is in a field of science or learning; and
  • The advanced knowledge was attained via a prolonged course of specialized instruction.

 Creative Professional Test

  • Main job responsibilities encompass the performance of work requiring invention, imagination, originality, or talent in a recognized filed of artistic or creative outlet as opposed to regular mental, manual or physical tasks; and
  • Earn over $35,568 annually (throughout all of NYS).

Outside Sales Test (Sample roles: Salesperson, Consultant)

    • Primary responsibility is to  make sales or secure orders/contacts; and
    • Work regularly outside the company’s offices as part of the role.


Employers should carefully document the basis on which they are assigning a nonexempt status to a position to avoid possible fines and penalties. Employers should not make the mistake of thinking that it is simply a matter of paying a higher wage to avoid overtime requirements. The nature of the work performed is key.

When deciding to qualify a position as exempt, employers are urged to seek guidance from an experienced  New York business attorney who can ensure compliance with law and protect rom unnecessary and unwanted fines and penalties.

Francine E. Love is the Founder & Managing Attorney at LOVE LAW FIRM, PLLC which dedicates its practice to serving entrepreneurs, start-ups and small businesses. The opinions expressed are those of the author. This article is for general information purposes and is not intended to be and should not be taken as legal advice. 

Francine E. Love
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Founder and Managing Attorney at Love Law Firm, PLLC which dedicates its practice to New York business law