Most employed people have probably heard the terms exempt and non-exempt before, primarily if they work an hourly wage job.
These terms became popular several years ago when many lawsuits arose due to the Fair Labor Standards Act. Many people who were owed overtime pay were not getting paid appropriately, so that triggered a new push to educate people on the difference between exempt and non-exempt job positions.
So, what exactly do these terms mean, and what is the difference? It might be a little more complicated than most people think, so pay attention as we explain all the differences between exempt and non-exempt employees.
What Is An Exempt Employee?
So, what does exempt mean, and how does it affect you? An exempt employee is exempt from the Fair Labor Standards Act (FLSA) rules. At its most basic level, most people know that the exemption means these employees are not entitled to overtime pay.
However, it can go a little deeper than that as well. Exempt positions are usually upper-level employees or managers. Some jobs have exempt status pretty much across the board, while others really need to be classified by specific job duties. For instance, a representative working in outside sales is almost always exempt, and some computer employees are also almost always exempt.
You can often not determine FLSA status simply by looking at a job title. However, there are a few telltale signs.
- In most cases, exempt employees receive a higher salary than non-exempt employees.
- If an exempt employee works more than 40 hours per week, they will not receive overtime. In fact, exempt employees often work more than 40 hours and
- They are usually paid on an annual salary instead of an hourly basis.
Most of the time, they are paid to do their job and achieve a certain outcome rather than just being paid for being at work for a certain amount of time.
KEY TAKEAWAYS
- One of the primary benefits of being a non-exempt employee is that you are eligible for overtime pay.
- Exempt jobs are generally more white-collar and tend to have higher pay.
- Employers are responsible for classifying jobs correctly according to the FLSA guidelines.
What Is A Non-Exempt Employee?
So, what does nonexempt mean, and what is a nonexempt employee? A non-exempt employee is not exempt from the Fair Labor Standards Act rules.
This means these rules apply to these employees, and both the employee and employer must follow those rules. They are eligible for overtime pay, and the rules regarding this pay are very specific.
- The Department of Labor states that employees who work more than 40 hours in a workweek must receive overtime pay.
- Federal law states that the overtime paid must be one and one-half times the normal hourly rate.
- State labor laws can also affect how and when overtime must be paid based on the number of hours worked, so make sure you are familiar with both Federal and state laws when calculating overtime.
In most cases, non-exempt employees are paid an hourly wage. If dealing with part-time employees, the overtime rules are not as much of an issue. However, there are other rules that apply to non-exempt employees that are both part-time and full-time.
Non-exempt employees often have a lower rate of pay than exempt employees, and they are usually in non-management positions. They are often more blue-collar workers, as opposed to exempt employees, who traditionally hold more white-collar positions.
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Fair Labor Standards Act (FLSA) Explained
The FLSA governs wage and hour employment laws in the United States. The U.S. Department of Labor helps enforce this law. While most people think about overtime pay when it comes to the FLSA, the law also governs federal minimum wage and youth workers.
According to the FLSA, several criteria must be met before an employee can be classified as exempt. Human resources at your company cannot simply classify you as exempt because they do not want to pay overtime. That can lead to lawsuits and hefty fines, which we will discuss later in this article.
For proper classification to occur, a company must examine the salary level and primary duty of the job. We will also discuss the “duties test” in more detail later in this article.
The FLSA also highlights an executive exemption, which essentially states that highly compensated employees (above $107,432) can be automatically qualified as exempt and not eligible for overtime. The FLSA also states that non-exempt employees must track time and attendance.
So, administrative employees, for example, must keep accurate records of their time worked. If the DOL ever asks for these records, the employer must produce them.
Exempt vs Non-Exempt Employees: Key Differences
Now that you know what defines each type of employee, we will examine a few key differences between them.
Overtime Eligibility
This is probably the most well-known difference between the two. Exempt employees are not eligible for overtime, while non-exempt employees must be paid overtime when working over 40 hours in a workweek. Notice that the overtime requirements are not per pay period but rather per workweek. Some employers have pay periods that do not coincide with the workweek. In some situations like that, it might be possible and legal for the employee to receive their regular pay rate for more than 40 hours in a pay period.
Salary
The salary an employee receives can also affect their classification. Exempt employees are usually paid more than non-exempt employees, often because they have higher-level job duties. In fact, an employee must be paid a salary threshold of at least $35,568 per year to even be considered for exempt status. Exempt workers are often professional employees who have a large role in business operations.
Duties & Oversight
Exempt employees typically have higher-level job duties and more oversight over company operations. They are also given the discretion to make decisions independently regarding matters of significance.
The job description is one way to prove this, but that is not always proof. It depends on how the job is executed. In order to be exempt, the employee must exercise bona fide discretion when making decisions.
For example, most administrative employees are non-exempt. However, there is an administrative exemption for employees who have purchasing power and can bind the company as purchasing agents.
TIP
Employers who incorrectly classify positions are subject to penalties and fines. They may also be sued by an employee for failing to pay overtime wages if the job should have been classified as non-exempt.
Classifying Employees And The Duty Test
It is the employer’s responsibility to classify an employee as exempt or non-exempt correctly. As mentioned, you cannot simply look at a job title or job description to perform the classification.
You must look at what the employee does in his or her day-to-day job.
- If they can exercise independent judgment and make decisions independently, there is a good chance they are working in an exempt position.
- Salaried employees are usually classified as exempt, but the employer should verify that their job duties align with that classification.
- The amount of time spent on exempt duties also plays a role. If an employee performs an exempt duty for only a couple of hours per week, then they are probably truly non-exempt employees.
Some states require that an employee spend at least 50% of their time performing exempt duties to pass the duties test. If they do not pass this threshold, they will likely receive hourly pay and be eligible for overtime hours.
Penalties For Improper Classification
Your company’s human resources department must constantly evaluate new and existing positions to ensure proper classification under the FLSA.
Improper classification can have many adverse consequences for employers and employees.
- First, the employer can be subject to fines and penalties from the Department of Labor. This can lead to regulatory enforcement, and the employer may be forced to change a position’s classification.
- For an employee, they might be missing out on overtime pay to which they are entitled.
In some cases, an employer might decide to reclassify a job position. However, this should be strongly considered, as it can also have negative consequences.
- In some cases, it might open the employer to litigation over past overtime that was not paid.
- On the other hand, reclassifying an employee from non-exempt to exempt might make them mad that they can no longer receive overtime pay.
They might even consider quitting and wonder, “Can I get unemployment if I quit?” Whatever the case, it is always wise for the employer to communicate openly and honestly with the affected employees. They should do their best to explain the law to the employees and the specific reasons for any reclassification.
In addition, this is why it is crucial to classify any new positions correctly. This way, you can avoid these potential reclassifications in the future.
The Bottom Line
Exempt vs. non-exempt classification can have a big effect on how your work is performed and on your paycheck.
Your employer must perform proper classification, which can only be done by examining the duties that you perform every day. Improper classification can lead to lawsuits, fines, and low employee morale.
Now, you should have a good idea of the differences between these two classifications, and you should know that overtime pay is only one of the differences.
If you suspect that your role may be improperly classified, you should contact your human resources department to discuss it. Also, remember that some states, like California, have even stricter rules than those laid out in the FLSA.
Frequently Asked Questions
One classification is not necessarily better than the other. There are pros and cons to each.
If you are classified as exempt, you are not eligible for overtime pay. However, your salary is likely a little higher, and you are not required to maintain strict record-keeping of time and attendance.
Non-exempt employees are usually paid a little less. However, they can receive overtime pay, which can sometimes significantly increase their income. They also have to maintain strict record-keeping of time and attendance, which means they must track all the time they work, usually down to 15-minute intervals.
While these two terms are often used interchangeably, they are different. There may well be instances where non-exempt employees are paid on a salary basis instead of hourly.
Salary is one factor used in determining FLSA status but is not the single determining factor. Just because a person is salaried does not always mean that they are exempt.
One of the most significant benefits of being exempt is that you do not have to track time and attendance strictly. According to the letter of the law, if you work for even a few minutes on any given day, it is the same as having worked all day.
Another benefit is that you will typically receive a salary, so the amount of pay in each paycheck will be the same. It is not dependent on the number of hours that you work during each pay period.
Lastly, exempt employees are typically given a higher degree of autonomy and decision-making when performing their jobs.
A few factors help make this determination. Those factors are the employee’s pay rate, the type of work performed, and the specific duties of their job.
The question usually comes down to specific job duties. Remember that you cannot make the determination based on a job title or description. You must examine the responsibilities that the employee performs daily.
There is no set rule regarding how each of these employees is paid. However, exempt employees are usually paid a salary, while non-exempt employees are paid on an hourly basis.
You may run into situations where that is not the case, and an employee may be classified one way or the other based on other deciding factors.
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