Exempt and non-exempt are classifications under the Fair Labor Standards Act (FLSA). That’s the federal law requiring that most employees receive at least minimum wage for each hour worked and overtime pay for hours worked over 40 in a workweek. Usually, employees who are entitled to both minimum wage and overtime are called non-exempt. Those who are not entitled to both are called exempt.

Any position can be non-exempt, meaning that employees in that position are entitled to both minimum wage and overtime pay. But if you would like to classify a position as exempt, it would need to qualify for one of the exemptions listed in the FLSA.

The most commonly used exemptions, particularly in office settings, are the executive, administrative, and learned professional exemptions. These are part of a group of exemptions often referred to as “white-collar exemptions.” Employees who are properly classified this way are not entitled to minimum wage or overtime. But, to qualify, each position must pass a three-part test:

• Duties: The employee must perform specific tasks (such as managing at least two people) and regularly use their independent judgment and discretion. Each exemption has its own duties test.
• Salary level: The employee must make at least $684 per week (under federal law, a few states have higher minimums)
• Salary basis: The employee must be paid the same each week regardless of hours worked or the quantity or quality of their work, with a few limited exceptions.

If a position meets all the criteria under one or more of the white-collar exemptions, the employee may be properly classified as exempt and will not be entitled to minimum wage or overtime pay. If the position does not meet all the criteria under a specific exemption, the employee must be classified as non-exempt and paid at least minimum wage and overtime when applicable.

The Ministerial Exception

In addition to the white-collar exemption, the courts have created a “ministerial exception” that exempts “clergy” from federal wage and hour laws. This exception is pretty straightforward when applied to traditional “clergy” positions. However, it can become murky when applied to positions not traditionally or clearly associated with “clergy.”

Executive Must:

• Primarily perform management duties.
• Regularly supervise at least two full-time equivalent employees (not volunteers).
• Have authority or significant influence in hiring, firing, discipline, and promotion decisions affecting employees.

Administrators Must:

• Primarily perform office or non-manual work related to the ministry’s management or business operations. Examples: business administrators, daycare directors, school principals.
• Use “discretion and independent judgment” in making decisions regarding significant matters. (Most support staff and clerical workers don’t meet this standard.)

Professional Must:

• Do work requiring advanced knowledge in a field of science or learning, such as theology, teaching, accounting, or law. Examples: clergy, teachers.

Creative Professional Must:

• Do work involving invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. Examples: musicians, writers, actors.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com