Exempt versus Non-Exempt Employees: The Administrative Exemption

In order to qualify for the administrative exemption, the employee must meet all of the following criteria:

1. The employee’s primary duty must be the performance of office or non-manual work directly related to management policies or general business operations or the performance of administrative functions in an educational setting in work directly related to academic instruction or training.“Directly related to management policies or general business operations” describes activities relating to the administrative operations of a business as opposed to “production” or, in a retail or service establishment, “sales” work. The exemption is limited to those who performance work of substantial importance to the management or operation of the business of the employer or the employer’s customers.
   Administrative operations of a business include, for example: advising the management; planning; negotiating; representing the company; purchasing; promoting sales; and business research and control. Further, employees whose work is directly related to management policies or general business operations include those whose work affects policy or whose responsibility it is to execute or carry it out.
2. The employee must customarily and regularly exercise discretion and independent judgment.
   • An employee under the constant direction of supervisors is not likely to be exercising the degree of discretion contemplated by the exemption. This exemption generally does not cover office and clerical employees operating under the direction of others.
   • The key question in determining the amount of discretion exercised by the employee is whether the employee is making the decisions independently or whether he is simply following an established procedure.
   • Even though an employee has significant discretion in judgment, if the discretion applies to the production process, the employee will not qualify under the administrative exemption. The employee must exercise discretion in respect to the company’s policies or operations to qualify for this exemption.
3. The employee must be compensated on a salary basis of at least $475.00 per week ($250 under the FLSA). Again, this equates to an annual salary of $24,700 and $13,000, respectively.

This is commonly known as the “short test” for determining the administrative exemption.
(The weekly salary amounts under the state law were increased in 2001. As with the executive exemption, the weekly salary amounts under the FLSA have not been adjusted in many years and therefore are quite low by today’s standards.)
Most employees only need to meet the short test requirements. If an employee does not meet the short test requirements, however, then all of the following criteria must be met in order to be considered an exempt administrative employee:

1. The employee must be paid on a salary basis of at least $400 per week ($155 under the FLSA)
2. The employee must meet criteria # 1 and # 2 above, plus:
3. The employee must:
   • Regularly and directly assist a proprietor, or employee employed in a bona fide executive or administrative capacity; or
   • Perform under only general supervision along specialized or technical lines requiring special training, experience or knowledge; or
   • Execute under only general supervision special assignments or tasks; and
4. The employee does not devote more than 20% (40% for retail or service establishment employees) of his hours worked in a workweek to activities not directly and closely related to the performance of the work described above.