All employees in your business must be classified by you as either exempt or nonexempt for purposes of complying with the FLSA — the federal law that governs wages and hours. Based on the criteria set out by the law, you can determine which classification is appropriate for each of your employees.

What does "exempt" mean? When an employee is exempt from the FLSA, it means that that employee is not entitled to the benefits and protections of the FLSA, and you, as an employer, are not subject to its rules for that employee. That means that an exempt employee may not have to be paid minimum wage or paid in accordance with the overtime requirements specified by the FLSA, for example.

What does nonexempt mean? When an employee is classified as nonexempt, it means that the employee is entitled to a minimum wage, overtime pay at the rate of time and one-half the regular rate for all hours worked in excess of 40 hours per week, as well as other protections under child labor and equal pay, as prescribed by the FLSA.

If you want to treat an employee as exempt, you must pay him or her a salary. Employees who are paid by hourly wage are automatically considered to be nonexempt. However, you can have nonexempt employers who are paid by salary.

Which employees are considered "exempt?" An exemption from the minimum wage, equal pay, overtime pay and child labor provisions of the FLSA applies to:

• Employees engaged in delivery of newspapers to consumers.
• Homeworkers making evergreen wreaths.

An exemption from the minimum wage, equal pay, and overtime requirements of the FLSA (but not the child labor laws) applies to:

• Employees of amusement or recreational establishments having seasonal peaks.
• Seamen on non-American vessels.
• Employees engaged in the fishing industry, including offshore seafood processing.
• Agricultural employees of an employer who did not use more than 500 person-days of agricultural labor in any quarter of the preceding calendar year; agricultural employees who are members of the employer's immediate family; hand-harvest laborers who are paid on a piecerate basis, commute daily from their permanent residences, and whose agricultural employment, if any, during the preceding calendar year was for less than 13 weeks; hand-harvest laborers under 17 years of age who are employed at a piece rate on the same farm as their parents; and workers principally engaged in the range production of livestock, such as cowboys and shepherds.
• Employees of weekly, semiweekly or daily newspapers of less than 4,000 circulation, the major part of which is in the county of publication or contiguous counties.
• Switchboard operators employed by independently owned public telephone companies having not more than 750 stations.
• Employees who are casual babysitters or companions to ill or aged persons unable to care for themselves.

An exemption from the minimum wage and overtime laws (but not the equal pay or child labor laws) applies to:

• Executives: an employee is an executive if the individual has discretionary powers and exercises managerial functions at least 50 percent of the time. A supervisor who, for example, assigns work, evaluates work, makes disciplinary recommendations, and is responsible for worker safety, and for whom this kind of work comprises 50 percent or more of her time is exempt under the FLSA as an executive employee.
• Administrative: an employee is in an administrative position if the individual assists an executive or administrative official in the performance of his or her duties or performs any of the following: (1) acts in a staff or a functional capacity (such as a tax advisor), (2) performs special assignments, (3) performs office or nonmanual work directly related to management policies, or (4) customarily and regularly exercises discretion and independent judgment.
• Professionals: an employee is a professional if the individual falls into one of three categories: (1) learned professions with recognized status based on the acquisition of professional knowledge through a prolonged course of study, (2) artistic professions, or (3) teachers.
• Outside salespersons

Once you've determined the status of each employee, you can then begin addressing the specific issues involved in complying with:

• minimum wage law requirements
• overtime pay requirements
• child labor requirements
• equal pay for equal work requirements

Note that each of these four major requirements exempts certain other employees from its scope; see the individual descriptions of these requirements for more information.