Many nonprofits are acutely aware that the Fair Labor Standards Act’s (FLSA) salary threshold for the white collar exemption soon will more than double to $913 per week ($47,476 per year). Another critical requirement for the white collar exemption’s applicability is the right job category, such as executive, administrative, or professional. Absent such qualifying job duties, an employee will not fall within the exemption – even if his or her salary exceeds the salary threshold – and therefore will qualify for overtime pay as a non-exempt employee. How are these job categories defined, and how can nonprofit employers make sure they properly classify their exempt employees?
“Executive” Exempt Employees
Under the FLSA, an executive employee is one (a) whose primary duty is managing the organization or a significant part of it, (b) who regularly directs the work of two or more other employees, and (c) who has the authority to hire or fire other employees or whose input on personnel matters is given particular weight.
Such employees thus should be engaged in managerial decisions like regularly assigning work, training, budget planning, making major purchases, and handling legal compliance matters. In addition, he or she should be regularly involved with HR functions like evaluating job applicants, determining pay rates, making schedules, conducting job performance reviews, and handling employee complaints and disciplinary matters. These functions should be the executive’s primary responsibilities, although he or she may perform other non-executive functions.
Executive positions within a nonprofit organization could include such individuals as an executive director (running the organization), the manager of a charitable thrift store (with supervisory authority over workers and responsibility over processing donated goods), or a director of a homeless shelter (with responsibility for managing volunteers, ordering supplies, and ensuring that program participants are served). A chief operating officer could likewise qualify as an exempt executive employee, provided that he or she primarily carries out such significant managerial responsibilities involving program operations and staffing.
“Administrative” Exempt Employees
Under applicable FLSA guidance, an exempt administrative employee is one (a) whose primary duty is performing office or other non-manual work directly related to the organization’s operations, and (b) who exercises “discretion and independent judgment” in “significant” matters. The first prong is relatively straightforward. The second prong is much more challenging, with elusive terminology and highly fact-specific determinations.
Consider an administrative assistant to a nonprofit CEO. To the extent the assistant primarily does the following, he or she likely exercises the requisite discretion and independent judgment:
- performs work affecting the organization’s operations to a substantial degree;
- plans long or short-term business objectives;
- makes decisions to depart from prescribed standards;
- makes decisions affecting the organization’s operational policies;
- negotiates matters with “reasonable latitude,” resulting in binding organizational decisions;
- formulates recommendations for management review;
- handles complaints and disputes on the organization’s behalf;
- helps formulate organizational policy; and
- makes significant financial commitments for the organization.
On the other hand, to the extent the assistant primarily does the following, he or she likely will not satisfy the “administrative” job duties requirement:
- follows prescribed procedures;
- performs mechanical, repetitive, recurrent, or routine work;
- carries out clerical duties (even if the duties involve a small amount of discretion);
- determines whether specified standards have been satisfied (even if there is some leeway in reaching a conclusion);
- performs inspection functions by following established procedures (even if using skills acquired through special training or experience);
- formulates recommendations in conformity with known standards;
- screens applicants or conducts interviews only to determine satisfaction of certain minimum qualifications;
- makes decisions that, on balance, are financially or otherwise insubstantial for the organization; and
- negotiates matters without “reasonable latitude.”
Applying these factors, an administrative assistant who essentially functions as a CEO’s extension – making major financial decisions, negotiating significant matters affecting the organization’s operations, and handling other substantial matters independently – likely will qualify for the white collar administrative exemption. By comparison, an administrative assistant who functions more as an assistant – marshaling information for the CEO’s decision, carrying out clerical responsibilities to help the CEO, and following established office procedures – likely will not qualify for such exemption.
“Professional” Exempt Employees
The professional employee exemption is much more straightforward. To qualify, the employee’s primary duty must be to perform work either (a) requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction, or (b) requiring creativity, invention, imagination, originality, or talent in a “recognized field of artistic or creative endeavor.” The first category includes traditional professions of accounting, actuarial computation, engineering, architecture, various types of sciences, pharmacy and other similar occupations that have a recognized professional status. The second category includes actors, musicians, composers, dancers, and visual artists.
Other White Collar Exemption Categories
Note that additional white collar exemption categories exist for purposes of FLSA exemptions: outside sales employees; employees in computer-related occupations; and highly compensated employees. The outside sales category requires that the employee’s primary duty must be making sales, and that the employee be customarily and regularly engaged away from the employer’s place or places of business. The computer-related professional category generally applies to analysts, programmers, engineers, and those with similarly specialized computer systems knowledge, with a different compensation threshold than the general white collar professional exemption. The highly compensated employee category involves a minimal duties test combined with a newly increased salary threshold of $134,004.
Keep in mind too that other exemption categories may exist such as the ministerial, seasonal operations, and teacher exemptions. Significantly, no salary threshold applies to these exemptions.
Recommendations for Nonprofit Employers
Key ways to ensure that employees are properly categorized as exempt or non-exempt include the following. First, understand the exempt categories as described above. Second, utilize written job descriptions that reflect how an employee’s primary responsibilities clearly fit within the exempt executive, administrative, or professional categories (or perhaps other exemptions), using the above criteria. Third, make sure that employees actually perform such exempt work responsibilities, consistent with their job descriptions.
The FLSA salary threshold may have changed, but the FLSA white collar duty requirements remain the same. Giving only a raise is not necessarily the solution for FLSA compliance, particularly for positions that may fall within grey areas. Nonprofit employers thus need to pay close attention to the distinction between exempt and non-exempt job categories and must pay overtime to non-exempt employees when owed.
For further guidance about FLSA overtime rules, please see our May 24, 2016 blog.
