What is the executive exemption to overtime pay?

The Fair Labor Standards Act, passed in 1938, requires employers to pay their employers one a half times their regular rate for any hours worked past 40 hours per week. However, this overtime rule does not apply to every employer and employee.

First, the FLSA only covers employees and not independent contractors. Under the FLSA, employees are those workers who are economically dependent on their employers. Second, the Act only covers employers who have workers that are engaged in or affecting interstate commerce. The interstate commerce requirement is interpreted very broadly and includes most employees.

Lastly, for an employee to receive protection from the FLSA and entitle him to overtime pay he must not be an exempt employee. The FLSA exempts employees who occupy certain positions. Among these exemptions is the executive exemption.

The executive exemption applies if the employee is paid a salary of at least $913 per week or $47,476 per year, his primary duty is managing the enterprise or a customarily recognized department or subdivision, he customarily and regularly directs the work of two more more employees, and he has the power to hire and fire or at least impact those decisions. If this exemption applies, the employee is not entitled to overtime pay.

Managing must be the employee’s primary duty—that is, it is the principal, main, major, or most important duty that the employee performs. It does not mean that to be exempt the employee must only perform managerial tasks, but that the character of his job as a whole is managerial. Generally, an employee who spends more than half his time performing managerial duties will be exempt.

For example, an employee who spends more time performing managerial work, is paid more than other employees doing non-exempt work, is relatively free from supervision, and who has more importance placed on his managerial duties can be said to have managing as his primary duty. If he meets the other requirements, he will be exempt from overtime.

Managing includes a wide range of tasks; generally, these are things that a manager would typically do and things that require a measure of judgment and discretion. Managerial tasks may also include tasks that involve the control of other employees. For example, the interviewing, selecting, and training of employees, handling grievances, disciplining employees, determining the type of tools, materials, supplies, or equipment to be used, and budgeting would be considered managerial tasks, and thus exempt work.

Further, to be exempt the employee’s performance of these tasks must be customary and regular. This does not mean that the employee must be constantly or only doing managerial work, but that isolated or one-time tasks will not make an employee exempt. Generally, this requirement includes work performed normally or every week.

The executive exemption also applies to employees who own at least a bona fide twenty-percent equity interest in the businesses where they work as long as they are actively engaged in managing the business.