Most employers are legally required to pay a certain minimum wage to their employees (at least $7.25 an hour to comply with federal laws) and pay overtime for hours worked over 40 in a work week (at least 1.5 times the regular pay rate). However, the Fair Labor Standards Act (FLSA) provides minimum wage exemptions and FLSA overtime exemptions for certain jobs and demographics.
Minimum Wage Laws & Overtime Pay Exemptions
While the FLSA guidelines are wide-reaching, there are some industry- and worker-type exemptions to both minimum wage and overtime. For a full list of minimum wage and overtime exemptions, visit the US Department of Labor.
Under the FLSA, employees are exempt from overtime if they can satisfy three salary tests:
- Salary Level: This means the employee’s salary is above a certain threshold.
- Salary Basis: This means the employee is paid a fixed weekly salary that does not fluctuate.
- Duties Test: This means the employee’s primary duties are exempt because they are primarily executive, professional, or administrative, as defined by DOL regulations.
If an employee does not “pass” all three tests, they are considered a nonexempt employee and must be paid overtime for all hours worked over 40 in a workweek. To learn more about salary test exemptions, read our article on the difference between exempt and nonexempt employees.
If your business is hiring employees in one of the following commonly exempt industries or you currently pay the following types of workers, you may be eligible for a minimum wage exemption and/or FLSA overtime exemption:
| Industry/Company | Worker Type |
|---|---|
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Certain executives are exempt from minimum wage and overtime pay. In general, they must meet these requirements:
- Pass the salary test
- Have the primary duty of managing the enterprise or a recognized department or subdivision of the enterprise
- Customarily and regularly direct work of two or more full-time employees (or their equivalent)
- Have hiring and firing authority or weight in hiring and firing decisions
Some administrative jobs are also exempt from minimum wage and overtime pay. In general, they must meet these requirements:
- Pass the salary test
- Have the primary duty of office or non-manual work directly related to management or general business operations
- Have primary duties involving exercising discretion and independent judgment in matters significant to the business
Normally, this applies to doctors, lawyers, and teachers. However, the definition also includes learned or creative professionals. Learned professionals use advanced knowledge in science or learning and have an advanced degree or specialized instruction. Creative professionals can include actors, musicians, writers, cartoonists, essayists, and, on some occasions, journalists. The salary test applies.
Outside sales employees do not need to meet the salary test. However, their basic duties must involve making sales or obtaining orders and contracts, which must be done away from the employer’s place(s) of business.
Some states also have rules about inside sales employees. For example, in California, inside sales employees are exempt from overtime pay, so long as they earn at least one and a half times the state minimum wage.
For this exemption, the employee must either meet the salary test or work on a fee basis of not less than $844 a week (an increase from the former $684 a week requirement).
Computer-related employees’ primary duties must include systems analysis or design, documentation, or testing of a computer system or program related to user or system design specifications or operating systems. Generally, this means programmers rather than computer repair or manufacturing.
Seasonal workers, whether on a farm or at an amusement park, are exempt from minimum wages (year-round employees will still be subject to minimum wage laws). You may, however, encounter some differences in your state. For instance, in Massachusetts, seasonal businesses are still required to pay the minimum wage but may be exempt from paying overtime for the following reasons:
- If the business is approved by the Massachusetts Department of Labor as a seasonal business
- If the business does not operate for more than 120 days out of the year
Additionally, in Pennsylvania, seasonal employees are covered by most of the same employment laws that apply to nonseasonal employees, including provisions for nondiscrimination, health and safety, wages and hours, employment taxes, and workers’ compensation. Check the Department of Labor laws for your state.
If you have a farm and used fewer than 500 man-days (approximately seven full-time equivalent employees) of farm labor in the previous calendar year, you are exempt from the minimum wage requirements. Employees of small fishing operations are also exempt.
Other jobs exempt from both minimum wage and overtime include the following:
- Casual babysitters
- Persons employed as companions to the elderly or persons with an infirmity
- Federal criminal investigators
- Switchboard operators
- Seamen
- Fishing
Minimum Wage Exemptions Only
Certain employee groups are exempt from federal minimum wage requirements, but still require overtime pay for work performed in excess of a standard workweek.
Tip-earning employees are defined as workers who engage in occupations where they regularly earn more than $30 a month in tips. Employers should consider tips in taxable wages but must pay at least $2.13 an hour (some states require more) in direct wages regardless of how much a worker earns in tips. Further, if an employee does not make the minimum hourly wage when combining the $2.13 and tips, the employer must make up the difference.
Although you are not required to pay the federal minimum wage, some states have a higher tipped minimum wage than the federal standard. Check your state before hiring employees for tipped services.
To provide employment opportunities for those with mental or physical disabilities, minimum wage is sometimes waived if the person with disability’s capacity for the job is impaired. However, you need a certificate from the Department of Labor (DOL).
Did You Know? Federal laws require nonprofits to pay federal minimum wage to workers who are blind or have severe disabilities.
Student-learners, such as vocational education students, can be paid as little as 75% of the minimum wage. This is known as subminimum wage, and laws are set by the DOL. Full-time students in retail or service establishments, agriculture, or institutions of higher education are also exempt. In these cases, you can pay as little as 85% of the minimum wage as long as they are registered students. You need DOL certificates for this, so you must submit a request.
Interns are a special case. They may be covered under FLSA and thus must be paid minimum wage and overtime. It depends on the nature of the employment relationship, how much of the internship is devoted to learning, and other factors. Check with the DOL or the internship program you’re operating.
To learn more about how to hire an intern, visit our guide.
Workers under the age of 20 may be paid a special minimum wage of $4.25 per hour for the first 90 days of employment. This ends after 90 days or when the worker turns 20, whichever occurs first. Learn more about youth minimum wages through the DOL.
Some colleges and universities, as well as other nonprofit organizations, can pay as little as 85% of the minimum wage. Again, you need a DOL certificate to do this. If you need help paying your nonprofit employees, check out our guide.
Overtime Pay Exemptions Only
There are several types of employees that are exempt from overtime pay and some that are partially exempt. These types of employees, however, are still eligible for minimum wage pay.
| Fully Exempt | Partially Exempt |
|---|---|
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Paying Minimum Wage and/or Overtime
Most businesses must comply with minimum wage and overtime rules when doing payroll, as most employees are “covered” under federal laws. The law holds accountable any businesses with employees engaged in interstate commerce; who produce or handle goods for interstate commerce; or who handle, sell, or otherwise work on goods or materials that have been moved or produced for commerce by any person, including those in communication and transportation. That’s nearly any business.
It also covers the following:
- Businesses that earn at least $500,000 annual gross volume of sales or business done
- Businesses that operate hospitals or institutions that care for the sick, elderly, or persons with mental illness
- Schools and institutions of higher education (for-profit and some nonprofit)
- Public agencies
Workers like guards, janitors, and maintenance employees who perform duties related to or essential for interstate activities are also covered by FLSA. These laws also generally apply to domestic workers.
Frequently Asked Questions (FAQs)
There are two types of minimum wage exemptions—by industry and by worker type. If you employ seasonal workers, certain farm laborers, or babysitters, you may be exempt from minimum wage laws. Additionally, those who receive tips, students, and certain IT employees may be exempt.
The lowest hourly rate allowed in the US is $7.25, the current minimum wage. Some occupations have lower wages, such as tipped employees at $2.13 per hour—however, their wages plus tips must equal the federal minimum.
Don’t automatically assume the position is exempt. There are a couple of factors to consider—like pay rate and job duties—that will help you determine exemption status. Consult with both the federal and your local state Department of Labor to understand the rules and determine if the position is exempt or nonexempt.
Bottom Line
Minimum wage exemptions and FLSA overtime exemptions are essential aspects of paying correct wages and staying in compliance. While there are exemptions to the wage rules, these are carefully defined by the FLSA. If you think you may qualify for an exemption, check with your local Department of Labor for more information and to apply for the necessary certificates.
