Salaried or Hourly? Part 1

Salaried or Hourly? Part 1 by Alan Krystal

{3:36 minutes to read} One of the most challenging decisions facing any employer is whether to designate an employee as salaried or hourly.

Many employers are under the impression that if they provide an employee with a supervisory title and give them a smartphone or a laptop, that employee is off the clock. As such, the employer is not required to pay overtime to that employee.

That supposition is incorrect. In order to be designated as exempt from overtime, there are several tests that an employer must satisfy to prove that exemption.

One of the most critical is a salary threshold. The present rule is that the employee must be compensated at a rate not less than $455 per week. However, as of December 1, 2016, the salary threshold indicating eligibility will be increased to $913 per week ($47,460 annually). According to the US Department of Labor, this will affect approximately 4.2 million workers who are presently classified as exempt employees.

The significance of this rule change to employers is enormous. In order to be able to claim an employee is exempt, they will have to compensate the employee at a significantly higher rate. In addition to satisfying the salary requirement, an employer seeking to classify an employee as exempt must be able to prove that the employee falls within one of five stated exemptions:

1. Executive exemption

The employee’s primary duty has to be:

  • Managing a portion of the enterprise;
  • Supervising and directing the work of two people; and
  • Having the authority to hire or fire, or giving great weight, in terms of hiring and firing decisions.

2. Administrative exemption

The employee must:

  • Perform work directly to the management or general business operation; and
  • Have the ability to exercise discretion and independent judgment with respect to significant matters.

3. Professional exemption

  • The employee’s “primary duty” must be to perform work that either requires advanced knowledge in a field of science or learning, or that requires invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
  • The advanced knowledge must be in a field of science or learning (i.e., law, medicine, accounting, engineering) or other occupations that have a recognized professional status. This is distinguishable from the mechanical arts or skilled trades where the knowledge could be of a fairly advanced type, but is not in a field of science or learning.  
  • The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction, which means specialized academic training is a standard prerequisite for entry into the profession.

In my next article, I will outline the last 2 stated exemptions: sales and computer positions.

Have questions about how this memorandum might affect your business? Feel free to leave a comment in the box below, or give us a call at 631-780-6555.

Alan Krystal


Alan Krystal

Alan H. Krystal, P.C.
631 780 6555