The differences between exempt employees and non-exempt employees can create a lot of confusion for employers and workers. Irrespective of whether you qualify for overtime pay or minimum wage, or work for more than 40 hours every week, the Fair Labor Standards Act (FLSA) governs the exemption status. Some jobs excluded from the FLSA Statute include those involving work in agriculture, while truck drivers and other professions governed by other laws are also exempted.
The FLSA governs most jobs in the United States, and it does so by classifying workers in two main categories, mainly:
The FLSA, states that non-exempt employees will receive overtime pay, while exempt employees don’t quality for any overtime pay, irrespective of the number of hours they have put into work. It may sound simple, but the FLSA has made various exemptions for minimum wage requirements and overtime pay. This will include white-collar exemptions for professional, executive, and administrative employees, outside sales employees, highly compensated workers exemption, and computer professionals.
If you want to learn whether an employee is exempt or non-exempt, you will need to conduct the following tests:
- Salary level test:
The current overtime rule states that all employees that earn less than $913 a week are non-exempt.
- Salary basis test:
This test identifies employees that are paid a minimum guarantee, irrespective of how many hours they have worked. The employee should have knowledge of how much they will be paid every week.
- Duties test:
This test identifies the nature of the role that is categorized for employees, whether it is ‘professional’, ‘executive’, or ‘administrative’. The FLSA exemptions are only for employees who perform high-level work, instead of job position or title descriptions.
The classification of employees as either non-exempt or exempt has become important, and there have been numerous lawsuits regarding it. The newly released sick leave mandate and overtime rules indicate that the businesses must look at several factors when reclassifying and reassessing their workforce.
They can adopt various approaches when it comes to employee classification, which can include a holistic process, a technology and a people approach. We have identified some crucial tips for successfully managing both non-exempt and exempt employees below.
- Ensure salaries don’t change based on hours worked
All employees should have their hours tracked, irrespective of whether they are exempt or non-exempt. This information is vital when it comes to paying the salary for employees, but hours worked should in no way affect the salary. Again, the salary shouldn’t change because of this. If an employee’s hours affect their salary and it changes their salary, then they aren’t exempt.
- Ask employees to track and schedule hours
The FLSA allows tracking of exempt employees, and the Department of Labor says that employers can ask exempt employees to track hours and work a shift without it affecting their exempt status. For instance, the state of Illinois asks employees to record the hours worked for exempt employees, and employers should separately track the hours of non-exempt and exempt employees.
- Train employees on policy changes
Organizations must educate all parties about the new rules, so that everyone understands the changes as well as the implications it has on employee compensation, morale, and management. It should be a part of the communication process, and training must be conducted so that employees in managerial roles are active in making these changes to the business. Changes in hour and wage regulations have unintended consequences, which is why updating the workforce for these changes is imperative.
- Update job requirements and corporate policy
If a company wants exempt employees to track their hours and work a shift, their corporate policy should place emphasis that it doesn’t treat employees as non-exempt. The best way to do this is by highlighting these additional requirements to be a part of the job responsibilities for employees. They will also need to work certain hours to perform their executive, professional and managerial duties. For instance, shift supervisors must work in the same shift as their employees, and must oversee operations, but they can still be non-exempt.
The difference between exempt and non-exempt employees
To help make things simpler, we are going to distinguish between the two main types of employees in the workplace:
- Exempt employees
- Non-exempt employees
We are going to discuss the main difference between these types of workers, the jobs they work at, and the difference between overtime work and their pay. The most important point to understand is that the term ‘exempt’ means getting exemption from being paid overtime. The FLSA has placed rules that govern if an employee is exempt from getting overtime pay.
- Exempt employees
Exempt employees don’t get paid overtime pay, which is guaranteed by the Fair Labor Standards Act (FLSA). In addition to that, a lot of states have their own hourly and wage rate laws, which are subject to further requirements from the FLSA.
The FLSA states that employers must pay minimum wage for 40 hours work in a week, and overtime pay for any additional time, unless the employee comes under the exception category. Apart from the Federal Act, a lot of states have their own laws and wage requirements. This is why it is important that employees follow and comply with the regulations set by the federal and state law.
If an employee is exempt, the employer doesn’t need to pay any overtime wages to them. It is solely at the discretion of the employer, if they want to pay for overtime hours worked. Some employers may offer additional perks instead of overtime pay in their employee benefits package.
Only those employees who are paid a non-hourly salary and perform professional, administrative, or executive duties are considered exempt employees. What further complicates matters for employers is that there are additional FLSA, state and federal laws for other workers like foreign workers, workers in training, volunteers, temporary workers, independent contractors, and interns. Employers must comply with all of them.
- Non-exempt employees
Non-exempt employees will receive overtime pay, because of the Fair Labor Standards Act (FLSA) as well as some states’ recently expanded overtime pay guidelines. You must check with the State Department of Labor website for other regulations in your area. Employers must pay time and half the employee’s regular rate of pay, whenever they work more than 40 hours in a week. A lot of employees should pay federal minimum wage for regular time, and around half for hours they have worked over the mandatory 40.
Types of exempt employees
There are three main types of exempt workers recognized by the FLSA, which are:
These categories are meant to encompass other job types, but the tasks performed on the job, and not the job title will decide whether an employee is exempt or non-exempt. The FLSA guarantees that non-exempt employees will be paid one and one-half times their standard salary for overtime worked during any working period.
Rules for exemption from overtime pay requirements
All STEM employees, salespeople, professional, executive, and administrative employees can be classed as exempt and become ineligible for overtime pay if they meet the following standards:
- Employees are paid a salary.
- Employees earn at least $455 per week.
- Employees are paid a salary for any week they work.
To qualify for overtime exemption, employees need to meet employment tests related to their job responsibilities and duties. The Society for Human Resource Management (SHRM) stated some general conditions that will be designated for employees to exempt them:
- For a professional exemption
Employees must have a main duty of work that requires advance knowledge in any field of science, or learning customarily that is acquired through intellectual, specialized or prolonged study. This will materialize in separate fields of engineering, computer analytics teaching, or other highly specialized fields.
- For executive exemption
Employees must have a main duty of managing a company, a subdivision of the company, or a department, and should directly work with around 2 employees, they should also have the authority to hire or fire. Their recommendations for changing the status of other employees and hiring or firing must also be considered.
- For administrative exemption
Employees must have a main duty of working directly with non-manual or office work that is related to general business operations of the customer, employer or management. Their main duty must be to exercise independent judgement and discretion with respect to others.
Exceptions to overtime requirements
Non-exempt employees make less than $455 a week, which comes around $23,660 every year, and offers you guaranteed overtime pay. There are some exceptions to this rule, which include researchers, who will be working under education or governmental grants. Examples of the overtime status of employees include the following:
- John is an exempt employee and will therefore not get any overtime pay.
- Susan is a non-exempt employee, which means she works overtime hours, as she can earn one and a half time her hourly wage.
- Elizabeth earns around $400 per week, which means she is guaranteed to earn more overtime for additional hours she puts in the office.
- Nathan was no longer a non-exempt employer after his salary increase and promotion, as he didn’t qualify for overtime pay anymore.
- Andrew accepted the first of two job offers, with a lower salary, because he qualified for overtime pay.
Different rules for classification of exempt workers and minimum overtime pay
Not every state has the same guidelines for exempt employees. For instance, in California, to class an employee as exempt from overtime requirements, the employer must pay the worker around $45,760 every year. Other employees will automatically become eligible for overtime pay, irrespective of their job responsibilities, because workers earning that salary must meet their criteria for getting the exempt status. Non-exempt employees also earn more overtime wages, which are around 1.5 times the minimum wage of California. This is about $11 every hour or $16.5 every hour.
In the state of the New York, the employees who earn less than $40,560 every year are paid on hourly basis and earn overtime pay.
While limiting overtime hours, increasing the salary threshold, and reclassifying sound like great options for tackling overtime rule changes, there are various considerations from a legal, technological, and business standpoint.
So, which is better?
All of that depends on the employees, because most workers would prefer being employed in non-exempt positions so that they are paid for every hour they work. For others, they prefer the freedom they can earn with salaried positions. For instance, non-exempt employees are responsible for a stringent standard regarding things like casual time.
Exempt employees on the other hand will spend a lot of time wasting time hanging about the workplace, while non-exempt employees will have their time closely monitored. They will only be allowed designated breaks during certain times in the workday. In general, exempt employees are paid more than non-exempt employees, since they are expected to complete important tasks irrespective of the number of hours it takes them. If coming in early or staying late is required for the job, then exempt employees are required to do that. Non-exempt employees will only work for the prescribed number of hours in a work day.
When it comes to deciding or classifying between exempt and non-exempt employees, it is imperative that you differentiate clearly between the two classes. All employers should follow the regulations set by the FLSA in the United States and understand the state regulations for exempt and non-exempt employees. Most people prefer being non-exempt, as that allows them to make more money by working overtime hours. For others, the freedom and benefits they get to enjoy as exempt employees works well for them. If you have further questions related to exempt and non-exempt employee classification or require more information on the current overtime provisions in your area, you should contact the Department of Labor in your State.