Employers are legally required to pay a certain minimum wage to their employees, $7.25 an hour to comply with federal laws. In addition, employers need to pay overtime (at least 1.5% of the regular pay rate, or “time and a half”) for hours worked over 40 in a workweek. However, the Fair Labor Standards Act (FLSA) provides minimum wage exemptions and overtime exemptions for certain types of jobs, positions, and demographics like minors or disable workers.
Your business may be exempt from minimum wage and/or overtime rules if you are in one of the following organizations or companies: farming, nonprofit, seasonal business, babysitting, small newspaper company.
You may also be exempt if you pay workers that are tipped employees, students, disabled, people under 20 years old, executive or administrative workers, IT employees, professional workers, outside sales reps, or highly paid workers.
Who Must Pay 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 whose employees are 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 then narrows it down to:
- Businesses that earn at least $500,000 annual gross volume of sales made or business done
- Businesses that operate hospitals or institutions that care for the sick, aged, or mentally ill
- Schools and institutions of higher education (for-profit and some nonprofit)
- Public agencies
Domestic service workers (day care, housekeepers, nannies) who earn more than $1,700 and work more than eight hours a week for a single employer (even if they have multiple clients) must be paid minimum wage.
Overtime Requirements May Still Apply
If your business was covered by FLSA March 31, 1990, but does not meet the $500,000+ volume of sales or business, you may be exempt from the minimum wage requirement. However, you are still subject to the overtime pay provisions of the FLSA.
Industry- and Situation-specific Overtime and Minimum Wage Exemptions
While the FLSA guidelines are wide-reaching, there are some industry exemptions to minimum wage and overtime. Certain types of workers are also exempt from the minimum wage requirements in specific situations, as well.
Farm & Agricultural
If you have a farm and, in the previous calendar year, used less than 500 man-days of farm labor, you are exempt from the minimum wage requirements. Employees of small fishing operations are also exempt.
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 wages, but must pay at least $2.13 an hour in direct wages regardless of how much a worker earns in tips. Further, if an employee does not make minimum wage when combining the $2.13 and tips, then the employer must make up the difference.
Student-learners such as vocational education students, are exempt from minimum wage and can be paid as little as 75% of minimum wage. 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 minimum wage as long as they are registered students. You need certificates from the Department of Labor (DOL) 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.
In order to provide employment opportunities for the mentally or physically disabled, minimum wage is sometimes waived if the disabled person’s capacity for the job is impaired. However, you need a DOL certificate.
Workers Under 20
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 the worker turns 20.
Some colleges and universities as well as other nonprofit organizations can pay as little as 85% of minimum wage. Again, you need a DOL certificate to do this.
Seasonal workers, whether on the farm or at the amusement park, are exempt from minimum wages. (Year-round employees will still be subject to minimum wage laws.)
Other Jobs Exempt From Minimum Wage
- Newspaper carriers or employees of small newspapers
- Switchboard operators for small telephone companies
- Babysitters, including casual companions for the elderly or infirm
- Informal workers
- Seamen on foreign vessels
Job-Specific Overtime Exemptions
In addition to certain industries, certain types of jobs are exempt from minimum wage or overtime requirements. Some of these come with multiple qualifiers. If in doubt, check with the Department of Labor or the FAQ page at Workplace Fairness.
Many cases must pass a “salary test.” The worker must be paid the same amount regardless of how many hours they work in a week and earn more than $47,476 in a year. Thus, in most cases, the employee is already making above minimum wage, so the concern is whether or not overtime pay applies.
Executive Employee Exemption
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 of 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
Administrative Employee Exemption
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
Computer Employee Exemption
For this exemption, the employee must either meet the salary test or work on a fee basis of not less than $913 a week or $27.63 an hour. Their primary duty must include systems analysis or design, documentation, or testing of a computer system or program as related to user or system design specifications and related to operating systems. Generally, this means programmers rather than computer repair or manufacturing.
Professional Employee Exemption
Normally, this applies to doctors, lawyers, and teachers. However, the definition also includes learned or creative professionals. Learned professionals use advanced knowledge in a field of 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. Again, the salary test applies.
Outside Sales Employee Exemption
Outside sales employees do not need to meet the salary test. However, their basic duties must involve making sales or obtaining orders and contracts, and they must be done away from the employer’s place(s) of business.
Exemptions for Highly Paid Employees
Anyone earning more than $134,004 per year with at least $913 a week is exempt from overtime pay requirements.
Jobs Exempt From Overtime Pay Only
Some jobs are covered under minimum wage requirements. However, because of the nature of the work, they are exempt from the overtime pay requirements. These include the following:
- Commissioned employees, such as vehicles salespeople (trucks, cars, farming, boats, aircraft), vehicle parts salespeople, and mechanics
- Employees of railroads and air carriers, taxi, seamen on American vessels, local delivery employees paid by trip rate
- Announcers, news editors, chief engineers of non-metropolitan broadcast stations
- Live-in domestic service workers
- Employees of motion picture theaters
- Farm workers
Partial Exemptions to Overtime Pay
There are also some partial exemptions, such as
- Those involved in the distribution of specified bulk petroleum products or agricultural commodities (such as truckers) may be exempt.
- Hospitals can adopt a 14-day workweek, with overtime at the 80-hour mark.
- First responders may adopt a work period of up to 28 days. In this case, overtime starts at the ratio of 212 hours per 28 days for fire personnel and 171 hours per 28 days for law enforcement. See the DOL fact sheet for details.
- Employees who lack a high school diploma don’t have to be paid overtime if the extra hours are part of a remedial reading or training program. (They should earn regular wages, however.)
Minimum wage and overtime pay are hot topics for businesses, and with good reason. It’s important not only to your employees but also for you to stay on the right side of the law. There are exemptions to the wage rules, but exemptions are carefully defined by the FLSA. This article provides general guidelines. If you think you may qualify, check with your local DOL Wage and Hiring Office for more information and to apply for the necessary certificates.