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Understanding FLSA Exempt Tests: Why Household Employees Are Almost Exclusively Non-Exempt Workers

Posted by HomeWork Solutions on 11/7/23 10:45 AM
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If you are considering hiring a nanny, senior caregiver, or other household employee, and are unsure if your new hire should be paid hourly or salaried, you're not alone. Many families are confused by the rules and guidelines that govern their employment arrangements with domestic employees. The Fair Labor Standards Act (FLSA) provides guidance and explains why nannies and most other household employees are considered "Non-Exempt workers under federal law and must be eligible for overtime pay.

The FLSA Exempt Test: A Brief Overview

The Fair Labor Standards Act (FLSA), enacted in 1938, was designed to protect the rights of workers across the United States. Though originally excluded from the act, domestic workers gained FLSA protections in 1974. Under FLSA, workers are classified as either "exempt" or "non-exempt" from overtime pay based on their job duties and annualized wages.  Non-exempt (hourly) workers qualify for overtime pay for every hour worked above 40 per week, while exempt workers do not.

Nannies, and almost all other household employees, by the very nature of their work, are considered non-exempt workers under FLSA. This is because they do not fit into any of the following exempt categories.

Executive Exemption -The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and the employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

Administrative Exemptions -The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Professional Exemption - The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;

  • The advanced knowledge must be in a field of science or learning; and
  • The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction. This advanced knowledge often requires a license in order to work in the field.
  • OR The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Computer Employee Exemption - The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled

Outside Sales Exemption - The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and the employee must be customarily and regularly engaged away from the employer’s place or places of business.

Highly Compensated Employees

Highly compensated employees performing office or non-manual work and paid total annual compensation of $107,432 or more (which must include at least $684* per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.

 

Guaranteed Hours

Another critical point to remember is that even if an employer guarantees a minimum number of hours to a non-exempt employee, these hours cannot be "banked" for future use. FLSA mandates that overtime is paid for actual hours worked over 40 in a given workweek, not based on a guaranteed minimum.

In other words, if you hire a nanny and agree to a guaranteed minimum of 45 hours per week but they only work 35 hours one week and 55 hours the next, the 55 hours do not offset the 35 hours in the previous week to avoid paying overtime. Each workweek is assessed individually, and overtime should be paid for any hours worked beyond 40 in that week.

Why Does This Matter?

Understanding the FLSA exempt test and how it applies to caregivers is essential for both employers and employees. Caregiverss work hard to care for your family and provide essential services to your household, and they deserve to be compensated fairly, especially when they work long hours.

By knowing and adhering to FLSA regulations, you can ensure that your nanny is compensated fairly and in compliance with federal labor laws. This not only protects the rights of your employee but also helps maintain a positive and ethical working relationship, which is crucial for a harmonious household environment.

Topics: nanny agency, senior care, nanny, Senior Caregiver Payroll, agency, senior, CPA

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