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Classifying Exempt Employees
*Updated info on the Salary Test [June 2018]
When an employer classifies an employee as exempt from minimum wage and overtime, it is up to the employer to establish that the employee meets the criteria for exempt status. There are three categories of "white collar" employees that may qualify for exempt status, executives (supervisors), administrative managers and professional employees. Both federal and state regulations require that employees must satisfy all of the duties tests and also be paid a genuine salary to be classified as exempt employees.
The Duties Tests
Exempt executives (supervisors) must satisfy the following duties tests:
  • Primarily manage a distinct unit or subdivision within the organization.
  • Spend most of the workweek performing management duties. This generally means more that 50 percent of the worktime, however, other factors might support exempt status if less than 50 percent of worktime is spent in management. Other factors could include: the employee is paid a significantly higher salary than is paid to nonexempt staff; the employee makes frequent management decisions; the employee is free from direct supervision.
  • Supervise two or more full-time employees (or the equivalent of two or more).
  • Have hiring or firing authority or, if not full authority, their recommendations are given particular weight.
  • Customarily and regularly exercise authority to make decisions of significance.
Exempt administrative employees must:
  • Primarily perform office or nonmanual work directly related to management policies or general business operations. The work must be distinguished from production or sales work and is limited to duties directly related to the running of a business and not merely the day-to-day carrying out of its affairs.
  • Perform work as an administrative assistant, such as an executive´s assistant who has management duties; a staff employee, such as an advisory specialist or department head; or as a special assignment employee such as a field manager.
  • Spend most of the workweek performing management duties. As with exempt executives, this generally means more than 50 percent of worktime; however, other factors might support exempt status.
  • Customarily and regularly exercise authority to make decisions of significance.
Professional employees must:
  • Primarily perform work as professionals in either learned or artistic professions, or as teachers in an educational institution or as highly skilled computer professionals. Learned professionals, teachers and highly skilled computer professionals are those who have attained knowledge of an advanced type customarily acquired by a prolonged course of specialized intellectual instruction and study. A four-year degree may satisfy this requirement, however associate degrees do not. (See also "Computer Professionals".)
  • Spend most of the workweek performing professional duties. This generally means more than 50 percent of worktime; however, other factors may be considered if less than 50 percent of the week is spent in professional work.
  • Perform work that is predominantly intellectual and varied rather than routine, manual, mechanical, or physical.
  • Consistently exercise discretion and independent judgment.
The Salary Test * 
On November 22, 2016 a federal judge blocked implementation of the US Department of Labor rule requiring an increase of the weekly salary to $913 a week or $47,476 annually for FLSA subject employers. This injunction means the rule did not take effect on December 1, 2016 and returns most salary minimums to $455 a week or $23,660 annually.
[*IMPORTANT*] However, effective July 1, 2018, employees working within the Portland metro zone will see the minimum wage increase to $12/hr. Employers should note that this wage increase will boost the minimum salary requirements for exempt employee classification in the Portland metro zone to $480 a week or $24,960 annually.
Employers should be vigilant because changes to this rule may come soon and those changes may have a retroactive application of the FLSA rule. Employers classifying employees as exempt who would not be exempt under the blocked rules might consider tracking hours of these employees in order to mitigate the risk. Check with your labor and employment attorney for specfic details.
Here is the link to the Department of Labor's website on this topic.
The salary must be a predetermined amount that is not varied based on quantity or quality of work. Exempt employees need not be paid for weeks in which no work is performed, however the general rule requires that the employee receive the full salary for any week in which work is performed without regard to the number of hours or days worked. The general rule is subject to exceptions as follows:
  1. Salary may be prorated (reduced) if an exempt employee takes a day or more off for personal reasons, other than sickness or disability (including work related accidents).
  2. Salary may be reduced for absences of a day or more for sickness or disability if the reduction is made according to the employer´s plan, policy or practice of providing paid sick or disability leave. For example, if an employer has a paid sick leave plan and the employee has exhausted all available paid leave under that plan, then his or her salary may be reduced by those absences of a day or more for sickness or disability.
  3. If the employee performs any work during the workweek when serving on jury duty, military leave or when attending a proceeding as a witness, the exempt employee´s weekly salary must be paid. However, the employer may offset any amounts received by the employee as jury or witness fees or military pay for that week.
  4. Reductions in an exempt employee´s salary may not be made as a disciplinary measure unless the penalty is imposed for violations of safety rules of major significance such as smoking in an explosive plant or oil refinery. However, if the employee is suspended for a full workweek, and no work is performed during that week, no salary is required.
  5. Reductions for unpaid disciplinary suspensions of one or more full days for workplace infractions or workplace conduct. Suspensions must be imposed pursuant to written policy applicable to all employees.
  6. An employer is not required to pay the full salary in the initial and terminal week of employment.
  7. In private sector employment, the exempt employee´s salary may not be reduced when an employee is absent for part of a day, unless the absence qualifies as leave taken under the federal Family and Medical Leave Act. (Special rules apply to government agencies).
In addition to the foregoing tests for professional employees, federal rules require that computer professionals must primarily perform work in one or more of the following categories to qualify for exemption:
In addition, both federal and state laws provide a separate exemption for employees who perform work in the previously listed categories, and who are paid an hourly rate of at least $27.63 per hour. Because the state exemption was adopted using the same conditions as the FLSA exemption at 13 (a) (17), no degree is required.
A. No, if an employee is truly exempt as a "white collar" employee, there is no need to track hours worked. However, it is permissible for employers to track hours worked for legitimate business purposes such as job costing, or benefit accruals. It is also permissible for employers to require exempt employees to be present during specified hours.
A. Yes, the Ninth Circuit Court of Appeals has decided that deductions from leave banks for absences are permitted since the words "amount" and "compensation" in the regulations refers to "cash" or "salary." Therefore, as long as the employee receives the appropriate payment in cash or salary, deductions from leave banks do not affect the exempt employee´s status. However, it is essential that the exempt employee´s salary is not "subject to deductions" for partial day absences. Therefore, employers should adopt policies clearly stating that the salary will not be reduced for absences of less than a full day, if the employee has no available accrued leave to access. 
Q. If the employee is absent for a full day or more due to sickness or disability, and has no accrued paid leave to use, may the employer reduce the employee´s salary?
A. Yes, as long as the employer has a paid leave plan that provides compensation in cases of illness or disability.
Q. Is it OK to pay extra amounts, in addition to the salary, to exempt employees?
A. Yes. Oregon regulations specify that extra amounts may be paid to exempt employees even if they are based on hourly rates. Federal regulations do not specify that extra compensation may be paid on an hourly basis, but state that bonuses, commissions, or shift amounts may be paid in addition to the guaranteed salary. Some court cases have questioned the practice of paying extra amounts on an hourly basis. Therefore, it is recommended that extra amounts be in the form of bonuses or other "lump" sums rather than "hour for hour."
Q. Is it permissible to reduce the exempt employee´s salary if the employer shuts down for part of a week due to slowdowns in orders, or for equipment failures, or for other operating requirements of the business?
A. No, the general rule requires that exempt employees be paid for the full week if any part of the week has been worked.
Q. Can an employer require an exempt employee to use accrued paid leave during a part-week shutdown?
A. An opinion letter dated November 20, 1995, issued by the U.S. Department of Labor, states that the employer may not require exempt employees to use accrued leave for absences occasioned by the employer. However, the U.S. Department of Labor has revised its enforcement policy and now relies on opinion letters issued on February 15, 1994 and April 6, 1995. The DOL´s current interpretation is that an employer may require the use of paid leave, so long as the employee receives his or her full weekly salary. This means that an employee who has exhausted all paid leave must nonetheless receive his or her full weekly salary when a part-week shutdown occurs. Click here to read the text of the above-cited DOL opinion letters. 
Updated JUNE 2018
Nothing on this website is intended as legal advice.  Any responses to specific questions are based on the facts as we understand them, and not intended to apply to any other situations.  This communication is not an agency order.  If you need legal advice, please consult an attorney.  We attempt to update the information on this website as soon as practicable following changes or developments in the laws and rules affecting Oregon employers, but we make no warranties or representations, express or implied, about whether the information provided is current.  We urge you to check the applicable statutes and administrative rules yourself and to consult with legal counsel prior to taking action that may invoke employee rights or employer responsibilities or omitting to act when required by law to act.