Administrative Exemption

May 5, 2023

This blog post provides information on the exemption from minimum wage laws and overtime pay provided by the Fair Labor Standards Act (FLSA) and California law, as applied to administrative employees.

State and federal wage and hour law requires that most employees in the United States be paid at least minimum wage for all hours worked and paid overtime at not less than time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek - or for more than 8 hours a day or 40 hours a week in California.

However, the FLSA and California law provide an exemption from both minimum wage and overtime pay for employees employed as bona fide administrative employees.

FLSA Administrative Exemption Criteria

To qualify for administrative exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary or fee basis at not less than $684 per week (for 2023). Job titles do not determine exempt status. In order for an exemption to apply, an employee’s job duties and salary must meet all the requirements of the Department’s regulations.

To qualify for the administrative employee exemption under the FLSA, all of the following tests must be met:

  • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684 per week;
  • The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
  • The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

The administrative exemption applies only when all tests are satisfied. These tests are explained in more detail below.

California Administrative Exemption Criteria

An exempt administrative employee under California law must:

  • be primarily engaged in the duties that meet the test of the exemption, customarily and regularly exercises discretion and independent judgment in performing those duties, and
  • earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment - for 2023, $1,240 per week, or $64,480 annually .

Below, we define some of the terms used to satisfy the exemption criteria under both state and federal law in order to be treated as exempt employees.

Salary Test

The administrative exemption requires a minimum salary. Employees must earn a monthly salary at least twice the California state minimum wage for full-time work.

In 2023, the state minimum wage is $15.50/hour.

So for employees to be exempt under state and federal law, they must earn the monthly salary equivalent of over $5,373 per month or $64,480 annually. This is equivalent to earning $31 an hour for 40 hours a week.

Salaried Employee Example

Trent works as a manager at a start-up that creates internet content. He oversees the content writers’ work and manages the office. He also has the authority to hire and fire them. He must regularly exercise discretion in his job. He also answers directly to the company’s top executives.

But Trent is paid a monthly salary of only $2500.

Trent does exempt work. But his salary is too low for the administrative exemption. This means his employer must pay overtime when he works more than 8 hours a day or 40 hours a week.

Primary Duty Test

“Primary duty” means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duties must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.

Whether an employee is primarily engaged in exempt administrative duties is determined by their actual work. The official job description does not matter if it is inaccurate.

Job Duties

The administrative exemption to overtime laws requires that the worker “primarily” do administrative work. This means that the exempt employee must spend more than one-half of their work time on exempt duties.

So the administrative exemption can apply even if a worker sometimes does non-exempt work. It can apply even if the exempt administrative employee regularly does non-exempt work. The exempt employee just needs to spend more than half of their working hours in an administrative capacity.

Directly Related to Management or General Business Operations

To meet the “directly related to management or general business operations” criteria, an employee must perform work unequivocally related to assisting with the running or servicing of the business.

Furthermore, to meet the “directly related to management or general business operations” requirement, administrative employees must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.

Work “directly related to management or general business operations” includes, but is not limited to, 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; database administration; legal and regulatory compliance; and similar activities.

Working on a manufacturing production line is NOT exempt work. Neither is selling products in a retail setting. Not all highly-skilled workers are administrative employees. They have to engage in the type of management/business work listed above.

Of course, all employees of a for-profit business help the business produce or sell goods or services in some way. However, the administrative exemption’s focus is on internal administration of the business, not on the marketplace offerings of the business. The question is not the purpose of the business (which may be to produce or sell products), but the employee’s actual job duties and the impact that the employee can make on how the business runes.⁠

Level of Supervision

For the administrative exemption to apply, an employee must either regularly and directly assist an owner or an executive or administrative employee, perform specialized or technical work requiring special training, with only general supervision, or perform special assignments under only general supervision.

For example:

  • An executive assistant who works closely with a senior executive of a major company.
  • An employee on a team responsible for negotiating a real estate transaction, assuming the employee is performing a special assignment under general supervision.

Employer’s Customers

An employee may qualify for the administrative exemption if the employee’s primary duty is the performance of work directly related to the management or general operations of the employer’s customers. Thus, employees acting as advisors or account managers to their employer’s clients or customers — as tax experts or financial consultants, for example — may qualify as an exempt administrative employees depending on the actual work performed by the employee.

Discretion and Independent Judgment

In general, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. The term must be applied in the light of all the facts involved in the employee’s particular employment situation, and implies that the employee has authority to make an independent choice, free from immediate direction or supervision.

Factors to consider include, but are not limited to: (1) whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; (2) whether the employee carries out major assignments in conducting the operation of the business; (3) whether the employee performs work that affects the operations of the business to a substantial degree, even if the employee's assignments are related to operation of a particular segment of the business; (4) whether the employee has authority to commit the employer in matters that have significant financial impact; (5) whether the employee has authority to waive or deviate from established policies and procedures without prior approval; (6) whether the employee has authority to negotiate and bind the company on significant matters; (7) whether the employee provides consultation or expert advice to management; (8) whether the employee is involved in planning long-or short-term business objectives; (9) whether the employee investigates and resolves matters of significance on behalf of management; and (10) whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances.

The fact that an employee’s decisions are revised or reversed after review does not mean that the employee is not exercising discretion and independent judgment. Regularly exercises discretion and independent judgment must be more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources.

Matters of Significance

The term “matters of significance” refers to the level of importance or consequence of the work performed. An employee does not exercise discretion and independent judgment with respect to matters of significance merely because the employer's business will experience financial losses if the employee fails to perform the job properly.

Similarly, an employee who operates very expensive equipment does not exercise discretion and independent judgment with respect to matters of significance merely because improper performance of the employee’s duties may cause serious financial loss to the employer.

Examples of the Administrative Exemption Employees

Given the reality that two seemingly similar positions may not carry the same exempt classification, it can be helpful to consider some real-world scenarios of how you would apply the administrative exemption in your organization. Here are a few examples to help you:

HR Professional Employees

Many human resources and benefits management positions fall under the administrative exemption because their primary duties involve interpreting and implementing company policies and making decisions on behalf of the company.

However, not all HR positions meet the requirements for the administrative exemption. For example, recruitment clerks who screen job candidates for minimum requirements would likely not meet the exemption criteria. They typically do not set the standards for review or make higher-level hiring decisions requiring independent judgment, unlike hiring managers or HR managers.

Administrative Employees

Simply working in an administrative function or having a title such as “administrative manager” or “administrative assistant” does not determine an employee’s FLSA exemption.

For example, an executive assistant working for a business owner or senior executive may meet the duties requirements for the administrative exemption if the position carries the authority to make decisions, use judgment, and manage non-manual processes. Conversely, an administrative assistant who primarily performs manual office tasks would not meet the duties requirement for the administrative exemption.

Non-Executive Managers

Employees who lead others to complete major projects, sales, and tasks that support business operations could meet the administrative exemption. It is not a matter of job level within the organization, as the exemption could apply to supervisors who do not have formal reporting lines with those employees. Rather, the employee’s independent decision-making and role in designing, directing, and implementing productivity improvements results in an administrative non-executive exemption.

Administrative Exemption Assistance

A non-exempt employee who is wrongly classified as exempt can sue their employer for unpaid overtime. The employee can collect the unpaid overtime pay and can also sue for interest and attorney’s fees and litigation costs.

Misclassified employees under the administrative exemption may also have been entitled to meal and rest breaks. If so, they can bring a wage and hour lawsuit for compensation. Employers will owe one hour’s pay for each meal or rest break the employee should have received.

Sometimes employers wrongly classify a large group of employees under the administrative exemption. In that case, a wage and hour class action lawsuit could be filed against the employer.

Do you need help determining your exempt or nonexempt status? Contact us at Freeburg & Granieri, APC, today!


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