Exempt vs. Non-Exempt Employees
Although the vast majority of Colorado hourly and salaried employees are entitled to both the minimum wage and “time and one-half” overtime pay, certain types of employees are exempt from overtime, the minimum wage or both. The following provides an overview of the various exemptions under the federal Fair Labor Standards Act (FLSA) and similar Colorado state laws.
Please note that the FLSA and state wage and hour laws are complex and, therefore, the information below can serve only as a general introduction to the various exemptions. If you would like additional information about the law and whether you are exempt, please contact us for a free and confidential consultation. Misclassified non-exempt employees may be entitled to recover thousands of dollars in unpaid overtime and other wages.
Exemptions discussed below:
- Executive Employees
- Administrative Employees
- Professional Employees
- Outside Sales Employees
- Commissioned Employees
- Computer Professionals
- Drivers/Loaders/Mechanics
- Automobile Dealerships
- Miscellaneous Exemptions
The Big Three: FLSA/Colorado Exemptions for Executive, Administrative and Professional Employees
Executive Employees: To qualify for the executive employee exemption, all of the following tests must be met:
- The employee must be compensated on a salary or fee basis at a rate not less than $455 per week. Determining whether an employee is paid a salary is not as simple a question as it might seem. For example, to be considered a salary, the amount paid must be guaranteed. In other words, an employee whose “salary” is subject to reduction for missed work or other performance issues, may not be considered salaried and, therefore, would not qualify for the overtime pay exemption.
- The employee’s primary duty must be managing the enterprise, or managing a specific department or subdivision of the enterprise. Generally, “management” refers to non-manual labor relating to supervising the work of a business. The exemption requires the employee to spend most of his or her time in non-manual work activities such as interviewing, selecting, and training of employees; setting and adjusting their rates of pay and hours of work; directing the work of employees; maintaining production or sales records for use in supervision or control; appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status; handling employee complaints and grievances; disciplining employees; planning the work; determining the techniques to be used; apportioning the work among the employees; determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold; controlling the flow and distribution of materials or merchandise and supplies; providing for the safety and security of the employees or the property; planning and controlling the budget; and monitoring or implementing legal compliance measures.
- The employee must customarily and regularly direct the work of at least two full-time employees or their equivalent. For example, one full-time and two half-time employees are equivalent to two full-time employees. The supervision can be distributed among two, three or more employees, but each such employee must customarily and regularly direct the work of two or more other full-time employees or the equivalent. For example, a department with five full-time non-exempt workers may have up to two exempt supervisors if each supervisor directs the work of two of those workers.
- The employee must have the authority to hire or fire other employees.
Administrative Employees: To qualify for the administrative employee exemption, all of the following tests must be met:
- The employee must be compensated on a salary or fee basis at a rate not less than $455 per week. Determining whether an employee is paid a salary is not as simple a question as it might seem. For example, to be considered a salary, the amount paid must be guaranteed. In other words, an employee whose “salary” is subject to reduction for missed work or other performance issues, may not be considered salaried and, therefore, would not qualify for the overtime pay exemption.
- 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, as distinguished, from working on the product or service the employer sells to customers. Generally, the type of work covered by the exemption is “back office” work as opposed to the actual work producing or providing the business’ product or service. The administrative exemption is designed for relatively high-level employees whose main job is to “keep the business running.” A useful rule of thumb is to distinguish administrative employees from “operational” or “production” employees. Employees who make what the business sells are not administrative employees. Administrative employees provide “support” to the operational or production employees. They are “staff” rather than “line” employees. Administrative work would include work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network, internet and database administration; and legal/regulatory compliance.
- The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. Generally, this requires that the employee be engaged in relatively high-level administrative work for the company.
- In general, the exercise of “discretion and independent judgment” involves the comparison and evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. This implies that the employee has authority to make an independent choice, free from immediate direction or supervision. Factors to consider include: 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; whether the employee has authority to commit the employer in matters that have significant financial impact; and whether the employee has authority to waive or deviate from established policies and procedures without prior approval. The exercise of 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.
- 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 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.
Professional Employees: To qualify for the professional employee exemption, all of the following tests must be met:
- The employee must be compensated on a salary or fee basis at a rate not less than $455 per week. Determining whether an employee is paid a salary is not as simple a question as it might seem. For example, to be considered a salary, the amount paid must be guaranteed. In other words, an employee whose “salary” is subject to reduction for missed work or other performance issues, may not be considered salaried and, therefore, would not qualify for the overtime pay exemption.
- The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment. Professional work is therefore distinguished from work involving routine mental, manual, mechanical or physical work. A professional employee generally uses the advanced knowledge to analyze, interpret or make deductions from varying facts or circumstances. Advanced knowledge cannot be attained at the high school level.
- The advanced knowledge must be in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction. Fields of science or learning include law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical and biological sciences, pharmacy and other occupations that have a recognized professional status and are 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 learned professional exemption is restricted to professions where specialized academic training is a standard prerequisite for entrance into the profession.
Other Commonly Used FLSA/Colorado Exemptions
Outside sales employees who work away from the employer’s place of business and whose primary duty is making sales to customers are exempt from the FLSA/Colorado overtime pay provisions.
Commissioned sales employees of retail or service establishments are exempt from the FLSA/Colorado overtime pay provisions if more than half of the employee’s earnings come from commissions and the employee averages at least one and one-half times the minimum wage for each hour worked.
Computer professionals: Certain computer professionals paid at least $27.63 per hour are exempt from the FLSA/Colorado overtime pay provisions. To be exempt, the employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field whose primary duties consist of: 1) the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; 2) the design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; or 3) the design, documentation, testing, creation or modification of computer programs related to machine operating systems. Generally, IT support or “help desk” workers do not qualify for this exemption.
Drivers, driver’s helpers, loaders and mechanics are exempt from the FLSA/Colorado overtime pay provisions if they are employed by a motor carrier and involved in the transportation of passengers or property across state lines.
Salesmen, partsmen and mechanics employed by automobile dealerships are exempt from the FLSA/Colorado overtime pay provisions.
Less Common FLSA Exemptions In Specific Industries
Most of these exemptions do not exist under Colorado state law so, even if you see your profession listed, please contact us for a free and confidential case evaluation.
(MW = minimum wage exempt OT = overtime exempt)
- Aircraft salespeople – OT
- Airline employees – OT
- Amusement/recreational employees in national parks/forests/Wildlife Refuge System – OT
- Babysitters on a casual basis – MW & OT
- Boat salespeople – OT
- Buyers of agricultural products – OT
- Companions for the elderly – MW & OT
- Country elevator workers (rural) – OT
- Workers with disabilities – MW
- Domestic employees who live-in – OT
- Farm implement salespeople – OT
- Federal criminal investigators – MW & OT
- Firefighters working in small (less than 5 firefighters) public fire departments – OT
- Fishing – MW & OT
- Forestry employees of small (less than 9 employees) firms – OT
- Fruit & vegetable transportation employees – OT
- Homeworkers making wreaths – MW & OT
- Houseparents in non-profit educational institutions- OT
- Livestock auction workers – OT
- Local delivery drivers and driver’s helpers – OT
- Lumber operations employees of small (less than 9 employees) firms – OT
- Motion picture theater employees – OT
- Newspaper delivery – MW & OT
- Newspaper employees of limited circulation newspapers – MW & OT
- Police officers working in small (less than 5 officers) public police departments – OT
- Radio station employees in small markets – OT
- Railroad employees – OT
- Seamen on American vessels – OT
- Seamen on other than American vessels – MW & OT
- Seasonal/Recreational Workers – MW & OT
- Sugar processing employees – OT
- Switchboard operators – MW & OT
- Taxicab drivers – OT
- Television station employees in small markets – OT
- Truck and trailer salespeople – OT