Exempt Employees: Understanding and Mastering Payroll Changes

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This essential webinar provides a comprehensive overview of the four classifications of exempt employees under the Department of Labor (DOL) regulations: executive, administrative, professional, and outside sales. Attendees will gain a clear understanding of the salary level and salary basis tests, including the specific rules around using bonuses to meet salary thresholds. The session will also detail what deductions can be legally made from an exempt employee’s salary and which missteps can trigger significant penalties and non-compliance consequences.

With the DOL intensifying scrutiny on worker classification, it is more important than ever for payroll and HR professionals to fully understand how exempt classifications are determined and maintained. Payroll departments, in particular, must strictly follow guidelines around paying exempt employees to avoid costly back pay awards and fines. Even if payroll isn’t responsible for initial classification, improper salary deductions can still result in widespread penalties that apply to all employees in the same role under the same manager. This webinar will arm you with the knowledge to protect your organization from such risk by ensuring compliance across the board.

Your Benefits for Attending:
  • What is exempt - exactly?
  • What are the categories of exempt employees under the FLSA?
  • Examine the job duties test
  • What is the bonus rule?
  • How is the highly compensated exemption applied?
  • Examine the latest from DOL on upgrading salary level tests for exempt employees!
  • What is salary basis?
  • When you can and when you cannot dock the pay of an exempt employee?
  • Where do the states stand on exempt?

Attending this webinar ensures you can confidently apply the latest FLSA exemption rules and protect your organization from potentially devastating financial penalties. You'll walk away with actionable knowledge that directly impacts payroll compliance and risk management.

Who Can Benefit:
  • Payroll Executives, Managers, Administrators, Professionals, Practitioners, and Entry-Level Personnel
  • Human Resources Executives, Managers, and Administrators
  • Accounting Personnel
  • Business Owners, Executive Officers, Operations and Departmental Managers
  • Lawmakers
  • Attorneys and Legal Professionals
  • Any individual or entity that must deal with the complexities and requirements of Payroll compliance issues

Level: Beginner/Intermediate
Format: Live webcast
Instructional Method: Group: Internet-based
NASBA Field of Study: Taxes (2 hours)
Program Prerequisites: None
Advance Preparation: None

  1. Introduction
  2. Our Focus For Today 00:01:06, 00:01:20
  3. Overtime Eligibility 00:02:57
  4. “White Collar” Exemptions - Known as EAP Exemptions 00:04:10
  5. Blue Collar Workers Since 2004 00:05:43
  6. Police, Fire Fighters, Paramedics & Other First Responders 00:08:13
  7. Three Tests For Exemption 00:09:18
  8. Job Duties Test 00:11:16
  9. Executive Duties - Exempt Employee 00:11:18
  10. Executive Duties Continued 00:11:36
  11. Primary Duty 00:13:37
  12. Primary Duty Continued 00:14:04
  13. Primary Duty: Factors to Consider Include, But Not Limited To 00:15:14
  14. Concurrent Duties 00:17:58
  15. Management 00:19:59
  16. Customarily And Regularly 00:21:32
  17. Department Or Subdivision 00:22:23
  18. Two Or More 00:23:04
  19. Staffing Meets The Two Or More Requirement 00:24:46
  20. Staffing Does Not Meet The Two Or More Requirement 00:26:05
  21. Staffing Does Not Meet The Two Or More Requirement Continued 00:26:40
  22. Administrative Duties - Exempt Employee 00:27:29
  23. Administrative Duties 00:28:09
  24. Management Or General Business Operations 00:29:15
  25. Management Or General Business Operations Continued 00:29:53
  26. Employer’s Customers 00:30:15
  27. Discretion And Independent Judgment 00:31:30
  28. Discretion And Independent Judgment Continued 00:32:30
  29. Use Of Manuals 00:34:07
  30. Human Resources 00:35:36
  31. Other Exempt Positions 00:37:00
  32. Learned Professional Duties - Exempt Employee 00:38:11
  33. Learned Professional 00:38:52
  34. Prolonged Course Of Specialized Intellectual Instruction 00:39:34
  35. Advanced Knowledge 00:40:10
  36. Field Of Science Or Learning 00:41:00
  37. Other Exempt Professions 00:42:28
  38. Other Non-Exempt Positions 00:43:05
  39. Creative Professional Duties - Exempt Employee 00:44:13
  40. Creative Professional Duties 00:44:21
  41. Recognized Field Of Artistic Or Creative Endeavor 00:44:48
  42. Computer Exemption 00:46:30
  43. Duties 00:47:44
  44. And… Design, Development, Documentation 00:48:05
  45. And… Design, Documentation, Testing 00:48:22
  46. The Exemption Does Not Include 00:49:29
  47. Outside Sales - Exempt Employee 00:50:23
  48. Outside Sales Exemption Duties 00:50:29
  49. Salary Requirement  00:50:56
  50. Primary Duty 00:51:08
  51. Making Sales 00:51:27
  52. Away From The Employer’s Place Of Business 00:51:49
  53. Fixed Site 00:53:20
  54. Drivers Who Sell 00:54:16
  55. These Factors Include 00:54:41
  56. Salary Level Test - Exempt 00:55:12
  57. Pending Updates To The Salary Level Tests 00:55:17
  58. Wage And Hour Division 00:55:25
  59. Exempt Salary Level 00:55:48
  60. Department Of Labor 2020 Salary Level Rule Changes 00:56:40
  61. Nondiscretionary Bonuses 00:57:05
  62. Example for 2025 00:58:13
  63. Example for 2025 - Minimum Salary Level 00:58:35
  64. Example 2 For 2025 00:59:05
  65. Additional Compensation 00:59:45
  66. Hourly, Daily, Or Shift Basis 01:0:02
  67. Reasonable Relationship 01:00:15
  68. Free Basis 01:00:40
  69. Free Basis  - Fee Payment 01:00:57
  70. No Salary Requirements 01:01:16
  71. Highly Compensated Test 01:01:33
  72. Total Annual Compensation 01:02:08
  73. Make-Up Payment & Pro-Rating 01:02:35
  74. Salary Basis Test - Exempt 01:04:21
  75. Salary Basis Test 01:04:36
  76. Deductions From Salary 01:05:38
  77. Full Day Increments 01:06:25
  78. Full Day Increments Example 01:08:30
  79. Permitted Salary Deductions 01:09:11
  80. Permitted Salary Deductions Continued 01:10:35
  81. Clearly Communicated Policy 01:11:45
  82. Safe Harbor 01:12:05
  83. Payroll Practices That Do Not Violate The Salary Basist Test 01:14:15
  84. Effect Of Improper Deductions 01:15:55
  85. Improper Deductions  - Examples 01:16:41
  86. Actual Practice: Factors Include, But Not Limited To 01:17:18
  87. Example: Effect Of Improper Deductions 01:17:40
  88. The States 01:19:45
  89. Where The States Stand 01:25:48
  90. Where The States Stand - Current Rules For EAP Employees 01:27:32
  91. Sample - Where The States Stand - Current Rules For EAP Employees 2025 01:27:59
  92. For Example: AK 01:29:39
  93. For Example: CA 01:30:33
  94. For Example: Connecticut 01:32:39
  95. For Example - Washington 01:33:29
  96. Final Questions 01:34:22
  97. Presentation Closing 01:42:36
  • Vicki M. Lambert, CPP

    Vicki M. Lambert, CPP

    Vicki M. Lambert, CPP, is President and Academic Director of The Payroll Advisor™, a firm specializing in payroll education and training. The company offers a payroll news service which keeps payroll professionals up-to-date on the latest rules and regulations.With over 35 years of hands-on experi [...]

    View Full Profile

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  • 80-20 Pareto Rule 00:14:29
  • Audit  00:14:46, 00:16:05, 01:17:45
  • Department of Labor (DOL) 00:56:40, 01:08:00
  • Exempt 00:00:06, 00:02:29, 00:03:39, 00:09:08, 00:12:28, 00:17:31, 00:20:14, 00:26:01, 00:33:59, 00:41:26, 00:49:43, 00:57:05, 01:13:49
  • Fair Labor Standards Act (FLSA) 00:01:49, 00:13:36, 00:36:01, 01:29:36
  • FMLA - Family and Medical Leave Act 01:07:09
  • Fringe Benefits 01:02:34
  • Garnishment 00:21:21
  • Job Duties Test 00:02:36
  • Minimum Wage 00:03:30, 00:04:28, 00:07:45, 01:30:10
  • Non-Discretionary Bonus 00:56:54, 01:02:17
  • Non-Exempt 00:01:31, 00:17:31, 00:36:36, 00:45:45, 00:59:41
  • Overtime 00:03:00, 00:04:29, 00:07:45
  • Safe Harbor 01:12:05
  • Salary 00:
  • Salary 00:59:03, 01:05:41
  • Salary Basis Test 00:02:21, 01:04:21
  • Salary Level Test 00:02:10, 00:55:12
  • Tangible Property 00:51:41
  • Wage 00:03:48, 00:53:38

80-20 Pareto Rule: The Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes.

Audit: A formal examination of an organization's or individual's accounts or financial situation

Department of Labor (DOL): The United States Department of Labor is a cabinet-level department of the U.S. federal government responsible for occupational safety, wage and hour standards, unemployment insurance benefits, reemployment services, and some economic statistics; many U.S. states also have such departments.

Exempt : Exempt employee is a term that refers to a category of employees set out in the Fair Labor Standards Act. They do not receive overtime pay, nor do they qualify for the minimum wage

FMLA - Family and Medical Leave Act: The Family and Medical Leave Act of 1993 is a United States labor law requiring covered employers to provide employees with job-protected and unpaid leave for qualified medical and family reasons.

Fair Labor Standards Act (FLSA): The Fair Labor Standards Act of 1938 29 U.S.C. § 203 is a United States labor law that creates the right to a minimum wage, and "time-and-a-half" overtime pay when people work over forty hours a week. It also prohibits most employment of minors in "oppressive child labor".

Fringe Benefits: An extra benefit supplementing an employee's salary, for example, a company car, subsidized meals, health insurance, etc.

Garnishment: A legal summons or warning concerning the attachment of property to satisfy a debt

Job Duties Test: The FLSA duties test refers to the work an employee must perform in order to qualify for exemption under the Fair Labor Standards Act. This exemption excludes the employee from the FLSA's minimum wage and overtime provisions.

Minimum Wage: The lowest wage paid or permitted to be paid specifically fixed by a legal authority or by contract as the least that may be paid either to employed persons generally or to a particular category of employed persons.

Non-Discretionary Bonuses: A non-discretionary bonus is a bonus that the employee is expected to be paid and it is usually given at the same time, either monthly, quarterly or annually. Because these bonuses are agreed upon ahead of time, they must be included in the regular rate of pay and the calculation of overtime.

Non-Exempt: Non-exempt employees are workers who are entitled to earn the federal minimum wage for every hour they work. Such workers likewise qualify for overtime pay, which is calculated as one-and-a-half times their hourly rate, for every hour they work, above and beyond a standard 40-hour workweek.

Overtime: Overtime is time and a half of what an employee earns for every hour worked over 40 in a workweek. The FLSA salary threshold is the minimum salary employers must pay employees for them to be exempt from overtime wages.

Safe Harbor: A safe harbor is a provision of a statute or a regulation that specifies that certain conduct will be deemed not to violate a given rule. It is usually found in connection with a vaguer, overall standard. Under the safe harbor, a “rental real estate enterprise” is treated as a trade or business for purposes of Sec. 199A if at least 250 hours of services are performed each tax year with respect to the enterprise. ... The safe harbor requires that separate books and records be maintained for the rental real estate enterprise.

Salary: A salary is a fixed regular payment, typically paid on a monthly or biweekly basis but often expressed as an annual sum, made by an employer to an employee, especially a professional or white-collar worker.

Salary Basis Test: Is a series of stipulations that may exempt an employee from being eligible for overtime pay.

Salary Level Test: Is one of three tests that employees must pass to qualify for an exemption from minimum wage and overtime pay under the Fair Labor Standards Act (FLSA)

Tangible Property: Tangible property in law is, literally, anything which can be touched, and includes both real property and personal property (or moveable property), and stands in distinction to intangible property.

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Frequently Asked Questions

The Department of Labor's EAP exemptions—Executive, Administrative, and Professional (also called white collar exemptions)—are the primary categories under which employees may be classified as exempt from FLSA minimum wage and overtime requirements. The Executive exemption covers employees who manage the enterprise or a department, customarily and regularly direct the work of two or more full-time equivalent employees, and have authority to hire, fire, or make recommendations with particular weight. The Administrative exemption covers employees performing office work directly related to management or general business operations who exercise discretion and independent judgment on significant matters. The Professional exemption divides into Learned Professionals (requiring advanced knowledge in a field of science or learning, typically requiring a prolonged course of specialized intellectual instruction) and Creative Professionals (requiring invention, imagination, originality, or talent in a recognized artistic field). Outside Sales employees—who primarily sell and customarily work away from the employer's place of business—are a fourth EAP category with no salary requirement. Vicki Lambert, CPP, covers all EAP categories in detail in Aurora Training Advantage's Exempt Employees: Understanding and Mastering the Changes for 2024 and Beyond webinar.
Under the DOL's 2020 salary level rule (and subsequent updates), employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the required standard salary level. This allows employers to set a lower base weekly salary—provided that nondiscretionary bonuses paid at least quarterly make up the difference. A nondiscretionary bonus is one that employees are promised in advance and expect to receive—predetermined bonuses tied to attendance, productivity, profit, or other measurable criteria. Discretionary bonuses (those awarded at the employer's sole discretion without prior promise) do not count. The employer must make quarterly catch-up payments if the sum of the salary plus nondiscretionary bonus paid in any quarter falls short of the required threshold. For example, if the weekly threshold is $684 and the base salary is $616, the employer must pay at least $68 per week in qualifying bonuses over each quarter—or make a catch-up payment within one pay period of the quarter's end. Vicki Lambert, CPP, walks through numerical examples of the bonus rule in Aurora Training Advantage's Exempt Employees: Understanding and Mastering the Changes for 2024 and Beyond webinar.
The salary basis test requires that an exempt employee receive a predetermined, fixed salary that is not subject to reduction based on quality or quantity of work. The employee must receive the full salary for any week in which work is performed, regardless of hours. The FLSA identifies specific circumstances under which deductions from salary are permissible without violating the salary basis test: absences of one or more full days for personal reasons (other than sickness or disability); absences of one or more full days for sickness or disability under a bona fide leave plan (once the plan is exhausted); penalties imposed in good faith for violating safety rules; suspensions of one or more full days for violations of workplace conduct policies (documented in writing); partial-week employment in the first or final week; and jury duty or witness fees (the employer may offset but not reduce). What is NOT permitted: deductions for partial-day absences, reductions for a short workweek caused by the employer's business needs, and docking pay for poor performance or tardiness in amounts less than a full day. Even one improper deduction can jeopardize the exemption. Vicki Lambert, CPP, covers permitted and impermissible deductions in Aurora Training Advantage's Exempt Employees: Understanding and Mastering the Changes for 2024 and Beyond webinar.
The safe harbor provision under the FLSA salary basis regulations protects employers from losing an employee's exempt status when improper salary deductions occur inadvertently, provided certain conditions are met. To qualify for the safe harbor, the employer must have a clearly communicated policy that prohibits improper deductions and includes a complaint mechanism for employees to report violations. The employer must reimburse any employees who were improperly docked, and the employer must make a good-faith commitment to comply in the future. If these conditions are satisfied, the isolated or inadvertent improper deduction does not result in loss of exempt status for the period of the violation. However, the safe harbor is not available if the employer has an actual practice of making improper deductions—defined as a widespread pattern of violations rather than isolated incidents. Establishing, documenting, and training managers on a written improper deduction prohibition policy is therefore not just a formality—it is the key mechanism that protects the employer's classification decisions if an error occurs. Vicki Lambert, CPP, explains the safe harbor's requirements and limitations in Aurora Training Advantage's Exempt Employees: Understanding and Mastering the Changes for 2024 and Beyond webinar.
While the FLSA sets federal minimum standards for exempt employee classification, many states have enacted more protective wage and hour laws that create higher salary thresholds, stricter duties tests, or narrower exemption categories. Employers must comply with whichever standard—federal or state—is more favorable to the employee. California is well known for its particularly rigorous exemption requirements: the minimum salary for exemption is two times the state minimum wage for full-time employment (significantly higher than federal), and the duties test requires that the exempt duties constitute more than 50% of the employee's actual work time. Washington, Alaska, and Connecticut also maintain salary thresholds above the federal level. Some states have additional exemption categories or apply the duties tests differently. Employers operating in multiple states must track each state's current requirements—which may be updated annually as minimum wages increase. Vicki Lambert, CPP, reviews where key states stand on EAP exemption rules as of 2025, including Alaska, California, Connecticut, and Washington, in Aurora Training Advantage's Exempt Employees: Understanding and Mastering the Changes for 2024 and Beyond webinar.