To qualify for the administrative exemption from the FLSA’s overtime requirements, an employee must meet the salary basis and two primary duty requirements for the exemption. As explained by the Ninth Circuit: “These three conditions are explicit prerequisites to exemption, not merely suggested guidelines. McKeen-Chaplin v. Provident Sav. Bank, 862 F.3d 847, 851 (9th Cir. 2017).
The “salary basis” test applies to the administrative exemption. To meet the test, the employee must earn the same amount each pay period regardless of quantity or quality of work performed. As of July 1, 2024, the minimum salary threshold for an exempt administrator is $844 per week or $43,888 per year. In January 1, 2025, the salary threshold is set to increase to $1,128 per week or $58,656 per year.
To meet the primary duty test for the administrative exemption, an employee must have a primary duty that involves the performance of “non-manual work directly related to the management or general business operations of the employer or the employer’s customers.” Second, the primary duty must “include the exercise of independent judgment and discretion.” Third, the discretion and independent judgment must be exercised with respect to “matters of significance” to the employer. The test is conjunctive, meaning that the employee must satisfy all elements of the primary duty test to be considered an exempt administrator.
To qualify for the executive exemption, an exempt administrator’s primary duty must be directly related to the management or the employer or its customers. The primary duty must involve “assisting with the running or servicing of the business” under 29 C.F.R. § 541.203(a). “Servicing” in turn includes “advising the management, planning, negotiating, representing the company, purchasing, promoting sales, and business research and control.”
The regulations provide examples of “directly related” work, which includes “work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations, government relations; computer network, internet and database administration; legal and regulatory compliance; and similar activities.” 29 C.F.R. § 541.203(b).
The regulations also make clear that an employee may qualify for the administrative exemption where his primary duty is “directly related to the management or general business operations of their employer’s customers.” The regulation cites as examples, “advisers or consultants to their employer’s clients or customers (as tax experts or financial consultants, for example) may be exempt.” 29 C.F.R. § 541.203(c).
To be considered as exempt, an employee’s primary duty must (1) include discretion and independent judgment; and (2) include making decisions with respect to “matters of significance” to the employer. 29 C.F.R. § 541.200(a)(3). The first part of this test assesses the type of work performed and second part of the test assesses the importance of the work performed to the employer.
To be considered exempt, an administrator’s primary duty must include the discretion and independent judgment. The exercise of discretion and independent judgment is defined by the regulations as involving “the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered.” 29 C.F.R. § 541.202(a).
Having some discretion and exercising some judgment (as every employee in the workforce must) is not enough: the discretion and independent judgment must be with respect to matters of significance. The regulations explain that the term ‘“matters of significance’ refers to the level of importance or consequences of the work performed.” 29 C.F.R. 202(a).
29 C.F.R. § 541.202(b), contains the following ten factors that must be assessed to determine if an employee exercises judgment to decide significant matters in the performance of his primary job duty: “whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business; whether the employee has authority to commit the employer in matters that have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval; whether the employee has authority to negotiate and bind the company on significant matters; whether the employee provides consultation or expert advice to management; whether the employee is involved in planning long- or short-term business objectives; whether the employee investigates and resolves matters of significance on behalf of management; and whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances.
The administrative exemption includes regulations that provide categories of workers who meet and do not meet the requirement of the administrative exemption. 29 C.F.R. § 541.203(a)–(j). As recently explained by the Eleventh Circuit, this “regulation draws a line between administrative employees, who help run the business by setting standards, and non-administrative employees, who help the business run by following the standards set for them.”
29 C.F.R. § 541.203(a)–(f) provide examples of workers who “generally meet the duties requirements for the administrative exemption” (listing categories of workers and some duties they perform). Workers identified as generally meeting the administrative exemption include: insurance claims adjusters, as long as they have settlement authority); financial services employees, as long as they conduct analysis and are not limited to selling financial products; team leaders assigned to complete major projects; executive assistants who work without “specific instructions or prescribed procedures” and have delegated authority on significant matters; human resource managers who do more than gather information to “screen” job applicants against minimum requirements; and purchasing agents who have the authority to bind a company on significant purchases.
The regulation on the administrative exemption also provides examples of categories of workers who “generally do not meet the duties requirements for the administrative exemption.” 29 C.F.R. § 541.203(g)-(j). Workers who are generally are not administrative exempt include: employees who do “ordinary inspection work” using “well-established techniques and procedures” often derived from manuals; “examiners or graders” who compare products using established standards; comparison shoppers who report competitors’ prices as long as they do not evaluate reports on competitors’ prices); and “inspectors or investigators of various types” in the public sector whose work involves using “skills and technical abilities in gathering factual information,” applying “known standards or prescribed procedures, determining which procedure to follow, or determining whether prescribed standards or criteria.
29 C.F.R. § 541.202(b), contains the following ten factors that must be assessed to determine if an employee exercises judgment to decide significant matters in the performance of his primary job duty: “whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business; whether the employee has authority to commit the employer in matters that have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval; whether the employee has authority to negotiate and bind the company on significant matters; whether the employee provides consultation or expert advice to management; whether the employee is involved in planning long- or short-term business objectives; whether the employee investigates and resolves matters of significance on behalf of management; and whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances.”
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