Understanding overtime pay rules: The professional exemption

An overview for architecture firm leaders on which of their employees qualify for the professional exemption

All businesses have an incentive to manage their costs of doing business, and paying employees overtime pay is an expensive proposition. Under the Department of Labor (DOL) rules, businesses are not required to pay an employee overtime if the employee is considered “exempt” from the overtime pay requirements. Accordingly, employers have an incentive to characterize employees as exempt. This incentive must be balanced, however, with the need to remain compliant with applicable labor laws. If you are found to be non-compliant with DOL rules, your firm may have significant exposure for back pay and penalties.

This series from AIA's Risk Management Program offers insight into DOL's requirements for properly classifying employees as exempt in five distinct categories; this entry covers the professional exemption.

The professional exemption is relevant to a majority of employees in most architectural firms because it relates to determining whether design professionals and registered architects can be classified as exempt.

To qualify for the professional employee exemption, all of the following tests must be met:

1. Does the base hourly wage compensation exceed the minimum salary threshold ($23,660 or $455 per week)
2. Is the employee’s primary duty the performance of work that requires advanced knowledge, which is defined as work that is predominantly intellectual in character and includes the consistent exercise of discretion and judgment
3. Is the advanced knowledge in a field of science or learning
4. Is the advanced knowledge customarily acquired by a prolonged course of specialized intellectual instruction?

Generally speaking, for design professionals and registered architects, determining whether the first, third, and fourth test are satisfied is relatively straightforward. For the first test—which many firms have mistakenly relied on as the sole test—it is relatively easy to determine that their design professionals earn more than $23,660 or $455 per week. The answer to the third test is also straightforward because the DOL specifically lists architecture as a qualified field of science or learning for purposes of the exemption. Similarly, qualification under the fourth test should be clear when the employee has obtained an architectural degree from an NAAB-accredited architecture school.

The second test is the most challenging to evaluate. There, the employee must demonstrate the consistent exercise of discretion and judgment in performing their duties in order to be properly classified as exempt. Some firms may consider that an NAAB-accredited degree means that the employee possess sufficient discretion and judgment. Depending on firm practices, however, employees with such a degree may not have sufficient project responsibilities to satisfy the second test. Other firms, believing it the safer choice, may consider the criteria for exempt status to be professional registration. Newly registered architects, however, still need to satisfy the second test. Additionally, an experienced yet unregistered architect may already be trusted with sufficient project responsibilities to be classified exempt. Clearly, these are not easy determinations.

To best assure compliance with applicable labor law, there are a few necessary steps your firm should take, no matter the size of your practice. First, have a clear set of job descriptions for your staff members and be vigorous in their use during hiring and performance reviews. Second, have a consistent policy related to promotions, especially if a promotion involves an anticipated change from non-exempt to exempt pay status. Third, engage your attorney and other knowledgeable advisor to regularly review your firm’s policies. Finally, regularly review developments of in DOL laws.

It should also be noted that the professional exemption is not the only exemption to the DOL overtime pay requirement. These other exemptions are beyond the scope of this article, but firms should also be aware of them and how they may apply to their employees.

Additionally, these resources can be used by firms to help determine employee compensation and exempt status:

• General Guidance from DOL
• DOL Fact Sheet 17D - Exemption for Professional Employees Under the FLSA
• AIA Salary Calculator (including job descriptions)

AIA has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice.