Misclassification can lead to big-bucks fines and lawsuits. First, if you've misclassified one employee as exempt, you've probably misclassified many others as well. Second, misclassifying almost invariably means you owe a large amount of overtime.

For most employers, the main exempt classifications are administrative, executive, professional, and outside sales. (Certain specialized computer personnel, certain highly compensated employees, certain retail sales employees, and employees covered by the Motor Carrier Act (MCA) may also be exempt.)

The Three Tests

To be exempt under the administrative, professional, or executive exemptions, employees must pass three tests:

• Salary level test. The salary level required for employees to be exempt is at least $455 per week.
• Salary basis test. To qualify for exemption, employees must be paid on a salary or fee basis.
• Duties test. In addition, to qualify for an exemption, employees must pass a duties test. In making the duties determination, titles mean nothing—only duties count. Here is a brief summary of the duties tests:

Administrative Exemption Duties Test

• Primary duty is office or nonmanual work directly related to management or general business operations of the employer or its customers, or
• Performance of administrative functions directly related to academic instruction or training in an educational establishment or of a department or subdivision of one, and
• Duties include the exercise of discretion and independent judgment with respect to matters of significance.

Executive Exemption Duties Test

• Duty consists of the management of the enterprise in which he or she is employed or of a customarily recognized department or subdivision.
• Employee customarily and regularly directs the work of two or more other employees.
• Employee has the authority to hire or fire other employees or provide suggestions and recommendations that will be given particular weight.

Professional Exemption Duties Test

• Primary duty is work that requires knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction (also called the "learned professional" exemption), or
• Primary duty is work as a teacher in the activity of imparting knowledge, or
• Primary duty is work that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor (also called the "creative professional" exemption).

Outside Sales Exemption Duties Test

• Primary duty consists of making sales or obtaining orders or contracts for services or the use of facilities for which a consideration will be paid by the client or customer.
• Customarily and regularly work away from the employer's place or places of business.

(Note: The salary test requirements do not apply to the outside sales exemption.)

The simplest mistakes in exemptions make for the biggest fines and settlements. Make sure your exemptions are solid—attend BLR's audio conferences (you can go to one or all four), for in-depth know-how on administrative, professional, executive, and outside sales exemptions. Get more information.

That's a recap of exemptions. Simple as that, right? Actually, as every HR manager knows, it's not simple. But how do you sort out the all the little details so you don't make an expensive mistake?

Our editors recommend an upcoming series of in-depth audio conferences—one for each of the major exemption types. This four-session approach will let the expert get to the real nitty-gritty of how each exemption works. You just sign up for the ones that affect you, or sign up for all four and receive a substantial discount!

Join us on:
 
Dec. 2 — The Administrative Exemption
Dec. 4 — The Professional Exemption
Dec. 9 — The Executive Exemption
Dec. 11 —The Outside Sales Exemption

On each day, you'll get an in-depth, practical, 90-minute audio conference all about one specific exemption. Our expert speaker will explain:

• The rules governing the exemption, including the most recent changes,
• Practical techniques for classifying employees correctly,
• The best ways to avoid common exemption mistakes, and
• Advice on conducting effective internal audits to spot errors before they turn into big trouble.

Each audio conference runs from 1:30 p.m. to 3 p.m. (Eastern Time—adjust for your time zone).

As with all BLR audio conferences, one fee trains all the staff you can fit around a conference phone. You can get your (and their) specific phoned-in or e-mailed questions answered in an extensive Q&A that follows the presentation, and your satisfaction is assured or you get a full refund.

If you can’t attend on those dates, you can preorder the conference CDs. Go here for more information on the conferences, to register, or to preorder the CDs.