What Makes an Executive Employee Exempt Under Federal Law?

If you’re in a management position and getting paid a salary, you might be exempt from overtime pay under federal law. But the rules aren’t based on your job title. Instead, what you do and how much you make decide whether you’re exempt.

That’s where the executive exemption under the Fair Labor Standards Act comes in. Below, we’ll discuss what it takes to qualify as an “executive” under the FLSA.

Overview of Federal Laws

In 2024, the Department of Labor tried to update the rules for exempt individuals. However, a federal court in Texas tossed out those updates.

The government is still following the 2019 version of the rules. That means the current minimum salary for exempt executive employees stays at $684 per week, and for highly compensated employees, the total yearly pay must be at least $107,432.

Keep in mind that lawsuits about the 2024 rule are still being filed in the courts, so things could change again. As of now, those are the numbers you need to know.

What the FLSA Requires

To be exempt under the executive category, your job has to meet all of the following:

• You’re paid a salary (not hourly) and earn at least $684 per week
• Your main job is managing a business, department, or team
• You regularly supervise at least two full-time employees (or the equivalent)
• You have real input into hiring, firing, promotions, and other staffing decisions

Again, the label on your job description doesn’t matter. It’s all about your actual day-to-day duties.

What “Managing” Really Means Under Federal Law

Your employer might have a different definition for ‘managing.’ But the federal law is pretty clear on this topic:

Under federal law, you’re likely a manager if you’re involved in:

• Hiring, firing, and training new staff
• Setting schedules or adjusting hours
• Assigning work and overseeing performance
• Handling complaints and discipline
• Controlling the department’s budget or deciding what tools and equipment to use
• Ensuring workplace safety
• Keeping things compliant with laws and policies

The keyword here is that these tasks make up your primary duty. In other words, they’re the most important part of your job. In that case, you’re probably considered a manager under the FLSA.

And no, it doesn’t have to take up 100% of your day. You can still jump in and help with regular tasks, but managing needs to be your top responsibility when everything’s considered.

What Counts as a Department or Subdivision

Your team needs to be more than just a random group of coworkers. It should be a recognized department or unit with a steady purpose. Temporary crews or rotating task groups don’t count.

What “Customarily and Regularly” Means

This part is also important. You need to supervise at least two full-time employees, or a full-time equivalent, regularly. That means more than once in a while, but not every day.

Say you consistently manage one full-time worker and two part-timers who work about 40 hours together. You meet this requirement.

Also, if a team has five full-time employees, two exempt supervisors can be appointed as long as each supervises at least two of those workers.

Making Staffing Decisions

You don’t have to be the one officially signing hiring papers or firing employees. However, your input needs to carry serious weight.

If your boss, for example, routinely listens to your advice when making personnel decisions, that counts. The key is that your recommendations are a regular part of your role, not just one-off suggestions here and there.

Special Rule for Business Owners

If you own at least 20% of the business you work for and are actively involved in running it, you’re automatically considered an exempt executive. In this case, the salary requirements don’t apply. Whether your business is a corporation, partnership, or anything else, this rule stands.

Highly Compensated Employees

You may also qualify for an exemption if you:

• Earn at least $107,432 per year, including at least $684 a week in salary
• Perform at least one of the duties required for executive, administrative, or professional exemptions

This rule makes it easier to meet exemption standards if you’re already being paid a high salary and doing office or non-manual work.

Being misclassified as exempt when you shouldn’t be can mean missing out on a lot of overtime pay. That’s why it’s so important to look at the full picture. This includes your duties, your salary, and how you spend your work week.

Disclaimer: This information is based on fact sheets the DOL provides.

Contact Morgan & Morgan if You’ve Been Misclassified

If you’re not managing people, making staffing calls, or earning the required salary, your employer can’t just call you “exempt” and skip the overtime. But if they do and are not willing to change their mind, then it’s time to have your case reviewed by professionals familiar with labor and employment laws. Contact Morgan & Morgan today to learn more.