FLSA Overtime Security Advisor

Glossary

Some of the terms and phrases used in this Advisor have particular meanings that are specific to the Regulations, Part 541. These terms are defined here to help you better understand how the regulations apply to specific employment situations. As you run this Advisor you will have the opportunity to return to the glossary to review the definitions when the terms are used.

Change in status
Covered
Customarily and regularly
Discretion and independent judgment
Discretion and independent judgment with respect to matters of significance
Educational establishment
   Other educational establishment
Enterprise or recognized subdivision
Exempt
Fee basis
Field of science or learning
Management
Management or general business operations
Management or general business operations of his or her employer's customers
Nonexempt
Particular weight
Primary duty
Recognized field of artistic or creative endeavor
Salary
Two or more other employees

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Change in status
A tangible employment action; a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.

Covered
A covered employee is one who is subject to the FLSA and therefore entitled to its minimum wage, overtime pay, recordkeeping and child labor protections.

Customarily and regularly
A frequency that must be greater than occasional but which may be less than constant. Tasks or work performed "customarily and regularly" includes work normally and recurrently performed every workweek; it does not include isolated or one-time tasks.

Discretion and independent judgment
In general, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. The exercise of discretion and independent judgment must be more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources.

The exercise of discretion and independent judgment implies that one has authority to make an independent choice, free from immediate direction or supervision. However, discretion and independent judgment can be exercised even if the decision or recommendation is reviewed at a higher level. Thus, the term "discretion and independent judgment" does not require that the decisions being made have to be final or free from review. The fact that one's decisions may be subject to review and that upon occasion the decisions are revised or reversed after review does not mean that one is not exercising discretion and independent judgment.

Discretion and independent judgment with respect to matters of significance
The phrase "discretion and independent judgment" must be applied in the light of all the facts involved in the particular situation in which the question arises. Factors to consider when determining whether an employee exercises discretion and independent judgment with respect to matters of significance include, but are not limited to:

• whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices;
• whether the employee carries out major assignments in conducting the operations of the business;
• whether the employee performs work that affects business operations to a substantial degree, even if the employee's assignments are related to operation of a particular segment of the business;
• whether the employee has authority to commit the employer in matters that have significant financial impact;
• whether the employee has authority to waive or deviate from established policies and procedures without prior approval;
• whether the employee has authority to negotiate and bind the company on significant matters;
• whether the employee provides consultation or expert advice to management;
• whether the employee is involved in planning long- or short-term business objectives;
• whether the employee investigates and resolves matters of significance on behalf of management; and
• whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances.

An employee does not exercise discretion and independent judgment with respect to matters of significance merely because the employer will experience financial losses if the employee fails to perform the job properly.

Educational establishment
An elementary or secondary school system, an institution of higher education or other educational institution. Sections 3(v) and 3(w) of the FLSA define elementary and secondary schools as those day or residential schools that provide elementary or secondary education, as determined under state law. Under the laws of most states, such education includes the curriculums in grades 1 through 12; under many it includes also the introductory programs in kindergarten. Such education in some states may also include nursery school programs in elementary education and junior college curriculums in secondary education. No distinction is drawn between public and private schools, or between those operated for profit and those that are not for profit.

Other educational establishment
The term "other educational establishment" includes special schools for mentally or physically disabled or gifted children, regardless of any classification of such schools as elementary, secondary or higher. Factors relevant in determining whether post-secondary career programs are educational institutions include whether the school is licensed by a state agency responsible for the state's educational system or accredited by a nationally recognized accrediting organization for career schools. No distinction is drawn between public and private schools, or between those operated for profit and those that are not for profit.

Enterprise or recognized subdivision
A recognizable subpart within an employer's larger operation that has a permanent status and a continuing function. For example, a large employer's human resources department might have subdivisions for labor relations, pensions and other benefits, equal employment opportunity, and personnel management, each of which has a permanent status and function.

When an enterprise has more than one establishment (or branch), each establishment (branch) may be a recognized subdivision of the enterprise. A recognized department or subdivision does not need to be physically located within the employer's establishment and may move from place to place and/or may consist of employees drawn from other recognized units or from a pool of available employees (e.g., a construction crew which moves from job to job).

Exempt
Under the Regulations, Part 541, an exempt employee is one who is not entitled to the minimum wage or overtime pay protections of the FLSA.

Fee basis
An employee will be considered to be paid on a "fee basis" within the meaning of the Regulations, Part 541 if the employee is paid an agreed sum for a single job regardless of the time required for its completion. These payments resemble piecework payments with the important distinction that generally a "fee" is paid for the kind of job that is unique rather than for a series of jobs repeated an indefinite number of times and for which payment on an identical basis is made over and over again. Payments based on the number of hours or days worked and not on the accomplishment of a given single task are not considered payments on a fee basis.

Field of science or learning
The phrase "field of science or learning" includes the traditional professions of law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical and biological sciences, pharmacy and other similar occupations that have a recognized professional status as distinguished from the mechanical arts or skilled trades which are not a field of science or learning.

Management
For purposes of the executive exemption criteria, "management" generally includes, but is not limited to, activities such as:

• interviewing, selecting, and training of employees;
• setting and adjusting their rates of pay and hours of work;
• directing the work of employees;
• maintaining production or sales records for use in supervision or control;
• appraising employees' productivity and efficiency for the purpose of recommending promotions or other changes in status;
• handling employee complaints and grievances;
• disciplining employees;
• planning the work;
• determining the techniques to be used;
• apportioning the work among the employees;
• determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked or sold;
• controlling the flow and distribution of materials or merchandise and supplies;
• providing for the safety and security of the employees or the property;
• planning and controlling the budget; and
• monitoring or implementing legal compliance measures.

Management or general business operations
For purposes of the administrative exemption criteria, "management or general business operations" means work directly related to assisting with the running or servicing of the business and includes, but is not limited to, work in functional areas such as:

• tax;
• finance;
• accounting;
• budgeting;
• auditing;
• insurance;
• quality control;
• purchasing;
• procurement;
• advertising;
• marketing;
• research;
• safety and health;
• personnel management;
• human resources;
• employee benefits;
• labor relations;
• public relations;
• government relations;
• computer network, internet and database administration; and
• legal and regulatory compliance.

This illustrative list shows types of functional areas or departments typically considered administrative in nature. It is not intended as a complete list of exempt areas, nor is it intended as a listing of specific jobs. Rather, the list shows functional areas or departments that generally relate to management and general business operations, although each case must be examined individually. Within such areas or departments, it is still necessary to analyze the level and nature of the work in order to assess whether the administrative exemption applies (i.e., does the particular employee exercise discretion and independent judgment as to matters of significance?).

Management or general business operations of his or her employer's customers
This includes work as described under "Management or general business operations" performed on behalf of the customers of the employee's employer. For example, a tax advisor or a marketing consultant employed by a firm which furnishes such services to its customers or clients for a fee.

Nonexempt
A nonexempt employee is one who is entitled to the minimum wage and/or overtime pay protections of the FLSA.

Particular weight
To determine whether an employee's suggestions and recommendations are given "particular weight," factors to be considered include, but are not limited to, whether it is part of the employee's job duties to make suggestions and recommendations; the frequency with which such suggestions and recommendations are made or requested; and the frequency with which the employee's suggestions and recommendations are relied upon.

Primary duty
The term "primary duty" means the principal, main, major or most important duty that the employee performs. Determination of an employee's primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee's job as a whole. Factors to consider when determining the primary duty of an employee include, but are not limited to:

• the relative importance of the major or most important duty as compared with other types of duties;
• the amount of time spent performing the major or most important duty;
• the employee's relative freedom from direct supervision; and
• the relationship between the employee's salary and the wages paid to other employees for performance of similar work.

The amount of time spent performing the specific duty can be a useful guide in determining whether such work is the primary duty of an employee. Thus, employees who spend more than 50 percent of their time performing a specific duty will generally satisfy the primary duty requirement. Time alone, however, is not the sole test, and nothing requires that exempt employees spend more than 50 percent of their time performing a specific duty. Employees who do not spend more than 50 percent of their time performing their major or most important duty may nonetheless meet the primary duty requirement if the other factors (listed above) support such a conclusion.

Recognized field of artistic or creative endeavor
Includes such fields as music, writing, acting and the graphic arts.

Salary
A predetermined amount of pay that constitutes all or part of the employee's compensation for the pay period. This predetermined amount is a fixed amount and may not be reduced based on the quality or quantity of the work performed. A salary is generally expressed as an amount paid per week, per month or per year.

Beginning January 1, 2020, employers may use nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis, to satisfy up to 10 percent of the standard salary level. See Fact Sheet #17U.

For purposes of the Regulations, Part 541 the employee must earn at least the minimum required salary level of $684 per week "free and clear" or exclusive of "board, lodging or other facilities."

Two or more other employees
Generally a total of 80 employee hours of work. One full-time (40 hours per week) and two half-time employees (20 hours per week), for example, are equivalent to two full-time employees. Four half-time employees are also equivalent.

In industries where the established standard defining full-time schedules is 37 ½ hours or 35 hours per week, two or more other employees may be defined as 75 or 70 hours, respectively.

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