Exempt Vs. Nonexempt Employees: What Is the Administrative Exemption?

Minimum wage and overtime pay are two of the requirements set forth in the Fair Labor Standards Act (FLSA). The FLSA mandates that employees be paid at least the minimum wage and also that they receive one and one-half times their regular rate of pay for weekly hours over 40 hours.

But there are exceptions to the rules. There are entire classes of employees who are not required to be paid overtime. Most of us are familiar with the idea that some employees can be classified as exempt from overtime pay. But it can be all too easy to assume that an employee will be exempt without confirming he or she meets the requirements. Let’s take a look at one of the most common exemption categories: the administrative exemption. What requirements must be met for an employee to qualify?

What is the Administrative Exemption?

The administrative exemption is one of several exemption categories in the FLSA that are commonly referred to as the “white collar” exemptions. (The others are the executive exemption, the professional exemption, the computer employee exemption, the highly compensated employee exemption, and the outside sales exemption). To qualify for the administrative exemption, the employee must meet both the salary requirements and the duty requirements.

The salary requirements are twofold. First, the employee must be paid on a salaried basis. Second, that salary must be equal to or greater than $455 per week. (And remember: that amount may be higher based on state laws. Check local regulations.)

According to the Department of Labor’s Fact Sheet on the Administrative Exemption, the duty requirements are as follows:

“The employee’s primary duty must be the performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers; and the employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance[i].”

It’s critical for employers to understand this duty requirement because each piece of it is significant. Only if an employee meets each aspect of the definition should that employee be categorized as exempt under the administrative exemption.

Dissecting Administrative Exemption Requirements

Let’s break down the duties requirements. Generally speaking, to meet the administrative exemption requirement, an employee must:

• Have primary duties—not merely occasional duties—that are related to the management or general operations of the business. Typically this includes roles in finance, accounting, marketing, purchasing, legal, HR, and other such roles. (Also bear in mind that this criteria can be met if the employee primarily performs these duties for one of the employer’s customers.) It does not, however, include roles that are primarily involved in the manufacture of the product or service of the organization. It also does not include roles in which the administrative duties are not the primary duties for the role.  
• Use discretion and independent judgment. This means the employee has a level of responsibility that requires him or her to make judgments independently, not merely to follow standards or take direction. The discretion and independent judgment must be related to matters of significance within the organization.

Even after knowing the requirements, it’s still easy to misclassify an employee if the employer isn’t careful. Let’s take a closer look at some ways employers get into trouble with misclassified exempt employees:

• The employee’s job title would imply they are exempt, but their duties don’t actually qualify. This issue can be problematic for employers, especially those who don’t do periodic audits or assessments to ensure that the job duties of exempt employees really do meet the requirements. Matching job titles or job descriptions is not enough; the actual work performed is what matters.
• The employee works on items that would qualify, but they’re not his or her primary duties. Establishing the primary duties is critical to confirming that the employee is indeed in a role that qualifies for the administrative exemption. This can become a question for nonexempt employees who occasionally perform work that would otherwise qualify under the exempt status. Each situation needs to be reviewed individually.
• The primary duties would qualify, but there is little to no discretion and independent judgment on the part of the employee. For example, if an employee primarily performs administrative duties but relies almost exclusively on either set standards or on the direction of a superior to make any decisions, then that employee may not be exercising discretion and independent judgment in the role. In these cases, it does not matter that the duties would qualify—if the “discretion and independent judgment” requirement is not met, the employee is not exempt.

About Bridget Miller:

Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.