Defining Salary-Exempt Employees, Part 2: The Administrative Exemption

Ari Rosenstein

In a previous article, we discussed the exemption test as it relates to Executive positions. In this article we cover the Administrative exemption, one of the harder categories for employers to justify. In a nutshell, the exemption is dependent upon how much authority and independence an individual has in their job.

There are 5 criteria that must be met in order for a position to qualify as exempt under the Administrative classification.

1. Their “Primary duty” is the performance of office/non-manual work directly related to the management or general business operations of the employer or the employer’s customers. The primary duty, occupying more than 50% of the employee’s time, must be engaged in non-manual office work. Filing paperwork, for example, does not qualify. The individual must be working on tasks related to the management of the company and not the production of whatever it sells or provides.
   
2. Customarily and regularly exercise discretion and independent judgment with respect to matters of significance. The individual must be working on “matters of significance,” and must regularly exercise “discretion and independent judgment.” Does the employee work with little supervision and have authority to make decisions on their own without prior consultation with their superior, or are they merely following established policies and work rules? This will be explained further below.
   
3. Regularly and directly assists an owner or an employee in an executive or administrative capacity. While the criteria to determine if an Executive qualifies for salary exempt is determined by the supervision of at least two full-time employees, the Administrative test varies. It places more emphasis on regularly, and directly, assisting an owner or employer and this is really an exemption level that needs to be very carefully considered. You might think typing letters for the boss is included in the “regularly and directly assists” or matters of significance, but that could in fact be considered simple admin assistant functions that aren’t exceptional enough to warrant an exempt status
   
4. Primarily engaged in duties that meet Administrative Exemption status. To meet the “directly related to management or general business operations” requirement, an employee must perform work directly related to assisting with the running or servicing of the business. This is in contrast to, for example, working on a manufacturing production line or selling a product in a retail or service establishment. Work “directly related to management or general business operations” relates to work in functional areas which we will specify in a moment.
   
5. Meets salary requirements. Of course the salary requirements must be met.

More “Discretion” and “Independent Judgment” Factors

Below are some further guidelines and clarifications of “discretion” and “independent judgement.” Ask yourself, does the employee:

• Have authority to formulate, affect, interpret, or implement management policies or operating practices INDEPENDENTLY?
  
• Carry out major assignments in conducting the operations of the business?
  
• Perform 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?
  
• Have authority to commit the employer in matters that have significant financial impact?
  
• Have the authority to waive or deviate from established policies and procedures without prior approval?
  
• Have authority to negotiate and bind the company on significant matters?
  
• Provide consultation or expert advice to management?
  
• Engage in planning long or short-term business objectives?
  
• Conduct, investigate or resolve matters of significance on behalf of management?
  
• Represent the company in handling complaints, arbitrating, disputes or resolving grievances?

If you answered “Yes” to three or more of these questions, there is a good chance the employee would qualify as salary-exempt. However, if you answered “No” to most of the questions, they are most likely non-exempt and should be paid hourly.

This is just a brief overview of a very complex topic.

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