The classification of employees as either exempt or non-exempt determines eligibility for overtime pay under federal law. This distinction is governed by the Fair Labor Standards Act (FLSA), which establishes minimum wage and overtime requirements for most American workers. Texas relies heavily on this federal framework, making an understanding of the FLSA definition necessary for both workers and businesses. Properly classifying a position ensures compliance with wage laws and prevents financial liability for the employer.
Defining Exempt vs. Non-Exempt
An employee designated as “exempt” is excluded from the FLSA’s minimum wage and overtime provisions. This means the employer is not required to pay them overtime for hours worked beyond 40 in a single workweek. The “non-exempt” classification applies to all other employees who must receive at least the federal minimum wage and overtime compensation for any hours exceeding 40. Classification is based solely on the employee’s actual job duties and compensation method, not the job title. To qualify as exempt, a position must satisfy three specific tests: a salary level test, a salary basis test, and a duties test.
The Salary Threshold and Basis Test
The first financial requirement for most standard FLSA exemptions is the salary threshold. Currently, an employee must earn at least $684 per week, which equates to $35,568 annually. This required amount must be paid “free and clear,” meaning the employee must receive the full minimum salary regardless of the quantity or quality of the work performed in a given week.
This payment structure is formalized by the “salary basis” test, which requires the employee to receive a predetermined, fixed salary not subject to reduction due to variations in work volume. An employer generally cannot deduct from this fixed salary for absences shorter than a full day or for poor performance. Deductions are permissible only in limited exceptions, such as when an employee is absent for a full day for personal reasons or sickness, or for penalties for major safety rule infractions. Failing to meet either the minimum salary level or the salary basis requirement automatically renders the employee non-exempt, regardless of job duties.
The White-Collar Duties Tests (Executive, Administrative, Professional)
Once the salary requirements are met, the position must satisfy one of the specific duties tests, commonly referred to as the white-collar exemptions.
Executive Exemption
For an employee to qualify under the Executive exemption, their primary duty must be the management of the enterprise or a customarily recognized department or subdivision. This individual must also regularly direct the work of at least two or more full-time employees, and possess the authority to hire or fire, or heavily influence such decisions.
Administrative Exemption
The Administrative exemption requires the employee’s primary duty to involve performing office or non-manual work directly related to the management or general business operations. This work must also include the exercise of discretion and independent judgment regarding matters of significance, involving the authority to make or recommend decisions without immediate supervision. This test often requires evaluating the substance of the work rather than simply the job title.
Professional Exemption
The Professional exemption is split into two categories: learned and creative. The Learned Professional exemption requires advanced knowledge in a field of science or learning, customarily acquired through a prolonged course of specialized intellectual instruction. The Creative Professional exemption applies when the primary duty involves work requiring invention, imagination, originality, or talent in a recognized artistic or creative field. Employees must satisfy both the applicable salary tests and the specific duties test to be properly classified as exempt.
Other Common Exemptions (Outside Sales and Computer Professionals)
Beyond the standard white-collar exemptions, the FLSA recognizes several other categories. The Outside Sales exemption is unique because it does not require the employee to meet the standard salary threshold or salary basis test. To qualify, the employee’s primary duty must be making sales or obtaining orders for services, and the employee must customarily and regularly perform this work away from the employer’s place of business.
The Computer Professional exemption applies to employees who perform specific duties such as system analysis, programming, or software engineering. These professionals can be paid on the standard salary basis, or alternatively, they can qualify for the exemption if they are paid on an hourly basis of at least $27.63 per hour.
Texas Wage Laws and FLSA Application
Texas does not have its own state wage and hour law separate from the federal FLSA. The Texas Labor Code largely defers to the federal standard, meaning the FLSA entirely dictates the minimum wage, overtime rules, and the criteria for exemption status within the state. Therefore, any analysis of a Texas employee’s exempt status must rely exclusively on the federal Department of Labor’s regulations.
The Texas Workforce Commission (TWC) handles wage claims, but its authority is generally limited to disputes over earned wages, such as a final paycheck. When a dispute involves alleged unpaid overtime due to FLSA misclassification, the TWC applies federal FLSA standards in its investigation. Employees in Texas who believe they have been misclassified typically file a complaint with either the TWC or directly with the federal Department of Labor’s Wage and Hour Division.
Risks and Consequences of Misclassification
Employers who incorrectly classify a non-exempt employee as exempt face serious legal and financial risks under the FLSA. If misclassification is discovered, the employer is liable for all unpaid overtime compensation, calculated retroactively for up to two years, or three years for willful violations. This back pay liability often includes liquidated damages, an automatic penalty that effectively doubles the amount of unpaid wages owed.
A successful claim often requires the employer to pay the employee’s attorney fees and litigation costs, significantly increasing the financial burden. The federal Department of Labor also has the authority to impose civil monetary penalties on employers, particularly when the misclassification is found to be willful or repeated. These financial ramifications serve as a strong incentive for Texas employers to conduct regular audits and ensure that all positions meet the FLSA’s requirements.