Most everyone who is employed has probably heard the terms exempt and non-exempt before, especially if you work an hourly wage job. These terms became popular several years ago when many lawsuits arose as a result of 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 rules of the Fair Labor Standards Act (FLSA). At its most basic level, most people simply know that the exemption means that 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. Some computer employees are also almost always exempt.
In many cases, you cannot make a determination of 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 basis than non-exempt employees. If an exempt employee works more than 40 hours per week, they will not receive any overtime. In fact, exempt employees often work more than 40 hours, and they are usually paid on an annual salary basis 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.
What Is A Non-Exempt Employee?
So, what does non exempt mean and what is a non exempt employee? A non exempt employee is not exempt from the rules of the Fair Labor Standards Act. This means that 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. If an employee works over 40 hours in a workweek, then the Department of Labor states that they 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 that you are familiar with both Federal and state law when it comes time to calculate 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 type workers as opposed to exempt employees which traditionally hold more white-collar positions.
Fair Labor Standards Act (FLSA) Explained
The FLSA is the law that governs wage and hour employment laws in the United States. The U.S. Department of Labor helps to enforce this law. While most people think about overtime pay when it comes to FLSA, the law also governs federal minimum wage and youth workers. According to the FLSA, there are several criteria that 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. In fact, that can lead to lawsuits and big fines as we will discuss later in this article.
For proper classification to take place, a company must examine the salary level and primary duty of the job in question. 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 employees who are highly compensated (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 ever asked by the DOL, then the employer must produce these records.
Exempt VS Non-Exempt Employees: Key Differences
Now that you know what defines each type of employee, we will look at a few of the key differences between the two.
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 which do not coincide with the workweek. In some situations like that, it might be possible and legal for the employee to receive their regular rate of pay for more than 40 hours in a pay period.
The amount of salary that an employee receives can play a role in their classification as well. 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 the business operations.
Duties & Oversight
Exempt employees typically have higher level job duties and more oversight over company operations. When it comes to matters of significance, they are given exercise of discretion to make decisions on their own. You can look to the job description as one way to prove this matter, but that is not always proof in itself. It really depends on how the job is executed. In order to be exempt, the employee must have bona fide exercise of discretion when making decisions. As an example, most administrative employees are non-exempt. However, there is an administrative exemption for those employees who have purchasing power and can bind the company as a purchasing agent.
Classifying Employees And The Duty Test
It is the responsibility of the employer to properly classify an employee as exempt or non-exempt. As previously mentioned, you cannot simply look at a job title or job description to perform the classification. You must look at what the employee actually does in his or her day to day job. If they are given the opportunity to exercise independent judgment and make decisions on their own, then there is a good chance that 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 probably are truly a non-exempt employee. Some states require that an employee spend at least 50% of their time performing exempt duties in order to pass the duties test. If they do not pass this threshold, then they will likely receive hourly pay and be eligible for overtime hours.
Penalties For Improper Classification
The human resources department at your company must constantly evaluate new positions and existing positions to ensure proper classification under the FLSA. Improper classification can have many adverse consequences for both the employer and employee. 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 the classification of a position.
For an employee, they might be missing out on overtime pay to which they are entitled. In some cases, an employer might decide that they need to reclassify a job position. However, this should be strongly considered as it can have negative consequences as well. 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 have open and honest communication 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 extremely important to correctly classify any new positions. 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 gets performed as well as your paycheck. Proper classification needs to be performed by your employer, and it 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, then you should contact your human resources department to discuss. Also remember that some states like California have even more strict rules than laid out in the FLSA.
Frequently Asked Questions
Is it better to be exempt or nonexempt?
One classification is not necessarily better than the other. There are really pros and cons to each. If you are classified as exempt, then 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 greatly increase their pay in some cases. They also have to maintain strict record-keeping of time and attendance which means that they must track all the time that they work – usually down to 15 minute intervals.
Is exempt the same as salaried?
While these two terms are often used interchangeably, they are not the same. There may well be instances where non-exempt employees are paid on a salary basis instead of an hourly basis. Salary is one factor that is used in determining FLSA status, but it is not the single determining factor. Just because a person is salaried does not always mean that they are exempt.
What are the benefits of being exempt?
One of the biggest benefits of being exempt is the fact that you do not have to strictly track time and attendance. According to the letter of the law, if you work for even a few minutes on any given day, then it is the same as having worked all day. Another benefit is the fact that you will typically receive a salary, so the amount of pay that you receive 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 it comes to performing their job.
What determines if a job is exempt or nonexempt?
There are a few things that help make this determination. Those things are the employee’s rate of pay, the type of work performed, and the specific duties of their job. The question usually comes down to specific job duties. Remember that you simply cannot look at a job title or job description to make the determination. You must examine the duties that the employee actually performs on a daily basis.
How are exempt and nonexempt employees paid?
There is no set rule on how each of these employees is paid. However, most of the time, exempt employees are 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.