How Do I Determine if an Employee is Exempt from Overtime?

You must pay overtime to employees who works over 40 hours a week unless the employee is specifically exempt from overtime pay or receives compensatory time off during the same pay period as the overtime worked. There are exceptions to this general overtime rule, some of which relate to specific industries. Most employers are usually confronted with deciding whether an employee is "exempt" from overtime payments.

Persons employed in a "bona fide executive, administrative or professional capacity" are exempt. Although there are no hard-and-fast rules for you to follow, the following should be considered in determining whether an employee is exempt:

• Is the employee principally involved in management of a recognized department in the company?
• Does the employee customarily direct the work of two or more others?
• Does the employee have the authority to hire or fire other employees?
• Does the employee have discretionary power which is regularly exercised?
• Is the work performed by the employee principally nonmanual?
• Does the employee's job generally require detailed knowledge of his/her industry or an advanced type of knowledge in a field of science?
• What percentage of the time does the employee devote to work which is not set forth above?

If you answered "yes" to the first six questions above and answered "work a small percentage" to the last question, the employee is likely considered exempt.

Another "exemption" applies to outside salespeople in a number of wholesale and some retail businesses. Outside salespeople are exempt when:

• The salesperson is principally and regularly engaged away from the employer's place of business and making sales, obtaining orders, demonstrating products or selling services.
• The work performed or duties other than those set forth above do not exceed 20 percent of the hours worked in the work week by the salesperson.
• The salesperson is compensated by the employer by a guaranteed salary commission or fee basis and is advised of his/her status as "an outside salesperson."

As mentioned earlier, certain industries have exemptions as well.