When classifying employees, you’ll use the terms “exempt” and “non-exempt.” How are they different? What are the rules for each? And how do they differ from a salaried employee? By understanding how each type is unique, you can be sure you are using the proper language for the workplace. Read on to see what the law requires when you pay your employees.
Fair Labor Standards Act
Before we get into any details about what the two types of employees are, consider where the rules come from. The Fair Labor Standards Act (FLSA) dictates how employers handle federal minimum wage, overtime rules, minors in the workplace, and documentation standards. The U.S. Department of Labor oversees enforcing the FLSA, and your business may also need to adhere to state, local, and federal laws.
At a minimum, a worker must be classified as exempt or non-exempt. Non-exempt workers must receive at least federal minimum wage and overtime pay of at least one and a half times their regular rate of pay for any hours worked after 40 hours in a workweek.
What is an Exempt Employee?
Many types of businesses hire exempt employees. They are often referred to as “salaried” workers that are paid on a salary basis, but “exempt” is the proper and legal term. They are called exempt because they are exempt from those FLSA guidelines mentioned above for hourly wages and federal minimum wages.
For the purpose of compliance, the term exempt requires that only the following types of employees are categorized and paid as such:
- Executive employees, such as CEOs, COOs, directors, or other high-level managers and leaders
- Supervisory employees, such as managers, supervisors, and those with employees working under them
- Professional employees, such as professors or teachers
- Administrative employees, such as executive assistants
- Outside sales reps, especially those who don’t work solely from an office and who travel often
Generally, these exempt employees have roles with a primary duty related to the management or general business operations of the company for which they work.
In addition to fitting into the proper employee type and job title, an exempt employee must receive payment on an annual salary basis, not an hourly basis. This is usually an annual sum, divided into weekly, bi-weekly, or monthly payments. It’s also separate from bonus structures or commission amounts.
This sum must be no less than $455 per week for any week they work (no matter how few hours), and that number will go up to $684 on January 1st, 2020. Companies will also be able to start using bonuses and commissions to account for up to 10% of that minimum weekly salary level’s requirement, starting in 2020.
What is a Non-Exempt Employee?
As the name infers, non-exempt employees are “not exempt” from the FLSA rules. They must be paid a minimum wage as set by federal, state, and municipal guidelines. They must be paid time-and-a-half for the number of hours worked over 40 per week.
What is the Difference Between Exempt and Non-Exempt Employees?
Beyond the type of work done and the pay structure, there are a few other differences between these types of employees. They are:
Overtime Pay
Since exempt employees are paid for the job duties they perform, not the hours they work, they will receive no overtime. For those hoping to get paid extra for additional time beyond 40 hours, a non-exempt status is best. Exempt employees don’t get paid traditional overtime pay. If your company is trying to curb wage costs, keeping your non-exempt workers at or under 40 hours may be beneficial.
Workers’ Rights and Benefits Implications
The most common and powerful workplace protections apply to both exempt and non-exempt employees equally. Labor laws protect both. The only major difference in benefits or work is overtime pay, which only applies to non-exempt employees.
Some benefits, such as health care or retirement packages, are given to full-time, hourly employees working 40 hours per week and non-exempt employees. From a perks standpoint, a non-exempt employee is usually considered a full-time employee, no matter how many hours they actually clock in at work.
FAQs
It can be confusing to know all the rules for classifying your workers. In addition to reading up on your local rules for exempt and non-exempt employees and turning to your Human Resources team as a resource, these frequently asked questions may help.
Can You Require an Exempt Employee to Work More Than 40 Hours?
Exempt employees are paid to do a job, including specific tasks as part of their exempt job duties. Since it’s assumed that they will need to work until their tasks are finished, this may require them to work beyond a traditional 40-hour workweek.
Companies can require that exempt employees work until their job is done, even if that requires more than 40 hours to do so. They can also set the normal workweek to be more than 40 hours for that employee if they choose.
Can Salaried Employees be Non-Exempt?
Salaried employees are generally understood to be exempt employees. Since non-exempt requires hourly wages and overtime pay for hours worked over 40 hours, any salary given must be set for an expected work week, with adjustments made for additional hours. Paying a non-exempt worker on a salary model doesn’t relieve the employer of their duty under the law to pay for overtime.
Can Supervisors/Managers be Non-Exempt?
Yes. While many leadership positions are paid as salaried, exempt employees, that doesn’t mean they have to be. You can choose to pay your managers on an hourly basis, provided you follow the rules for overtime hours worked and the minimum wage for your state or municipality.
Are All Non-Exempt Employees Hourly?
You can choose to pay your non-exempt workers in any fashion you wish, including tips, commissions, per day, per week, etc. As long as they end up receiving minimum wage for the time worked, plus time-and-a-half for any hours over 40 per week, it is considered FLSA-compliant.
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