Thousands of newly minted accountants leave universities each May to work at one of hundreds of public accounting firms across the nation. These entry-level professionals enjoy a competitive annual salary, but with a 70-hour workweek during tax season, how much are they really getting paid? Most jobs in America are classified as either exempt or nonexempt. Here is the distinction.
Fair Labor Standards Act
The American Fair Labor Standards Act (FLSA) went into effect in 1938. This federal statute established the standard 40-hour workweek, abolished unjust child labor practices, introduced a set minimum wage and developed the current principles of overtime. Today, the FLSA governs much of the commercial activity in the United States. Some industries are included, while others are excluded. Likewise, certain jobs are covered, while other duties are exempt.
Some professions are not subject to the FLSA rules for overtime and minimum wage. The statute specifically excludes a number of jobs, including those in movie theaters and some in agriculture. The act also excludes professions that are regulated by alternative federal labor laws. This is the case for railroad workers who are subject to the American Railway Labor Act.
Exempt vs. Nonexempt
For jobs that fall under the Fair Labor Standards Act, employees are classified as either exempt or nonexempt. Exempt workers are not entitled to overtime pay, while nonexempt employees receive compensation at time and one-half the regular rate of pay for all hours worked in excess of 40 per week. Some exempt jobs are classified by title, such as outside sales associates and many professional and executive occupations. In general, however, the distinction depends on the type of work performed, the salary grade earned and how the employee is actually paid.
- Salary: Exempt employees must earn at least $23,600 annually or $455 per week. This rule does not apply to teachers, lawyers and outside salespersons. All workers below this threshold are automatically considered nonexempt under the FLSA. Exempt employees must also be paid on a salary basis. In other words, their predetermined weekly wages cannot be reduced with changes in the quality of work produced or the quantity of work available. Most employees with annual salaries over $100,000 are automatically considered exempt.
- Duties: After meeting the salary level and basis tests, employees must also perform specific job functions in order to qualify as exempt workers. Titles are completely irrelevant. Exempt job duties are typically considered high-level functions and are classified as executive, professional or administrative.
Executive duties must involve the supervisions of two or more full-time workers. Management must be a primary function of the role, and the employee must hold a certain degree of authority, such as the ability to hire and terminate.
Professional duties are work functions that require specialized education or advanced knowledge. Examples of exempt occupations include doctors, lawyers, dentists, accountants, architects, teachers, licensed engineers, registered nurses, pharmacists and actuaries. Some creative professions, such as acting and composing, may also be considered exempt.
Finally, the administrative exemption generally applies to high-level staff employees who work in areas outside operations or production. Labor relations, network administration, public relations, marketing and finance are all departments with administrative functions for exempt purposes.
When it comes to the FLSA, nonexempt employees have the upper hand. A full salary is just about the only FLSA right that exempt workers can count on. Furthermore, companies can legally require any exempt employee to work specific work hours or even a minimum amount of overtime. Such is the case with accountants in public firms during tax season.
The FLSA plays a big role in the career decisions of many young adults. Whether you’re butcher, baker or candlestick maker, be sure you know your rights as an employee and an industry professional.
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