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An exempt employee describes a salaried employee that is not covered by Fair Labor Standards Act (FLSA), which means they do not qualify for overtime pay. Non-exempt employees, on the other hand, are hourly employees that do qualify for minimum wage and overtime pay protections.
In this guide, we’ll cover more specific differences between exempt and non-exempt employees, as well as the pros and cons for each. We’ll also touch on employee classifications, FLSA overtime rules, and wage and hour laws, all of which pertains to exempt and non-exempt employees.
In this guide:
What Is an Exempt Employee?
An exempt employee is an employee that is paid a salary rather than an hourly wage, which means they do not qualify for minimum wage or overtime pay. Generally speaking, these employees are paid more, have more professional responsibilities, and work outside sales, in administrative, executive, or computer-related fields.
Key Terms
There are some important terms you'll need to understand what an exempt employee is, and how it's different from a non-exempt employee. Here's a list to get you started.
- Exempt – a type of employee that is not covered by FLSA protections, typically salaried worker.
- Non-exempt – a type of employee that is covered by FLSA protections, typically an hourly worker.
- Hourly – a method of payment that involves being paid based on how many hours you work.
- Salaried – a method of payment that involves being paid a fixed amount regardless of how many hours they work.
- Fair Labor Standards Act (FLSA) – a US labor law that established the minimum wage and other labor protections.
- Department of Labor – the US federal agency in charge of governing for the health, safety, and financial well-being of employees and workers in the country.
What’s the Difference Between Exempt and Non-Exempt Employees?
A non-exempt employee is typically being paid an hourly wage rather than a salary, so they are entitled to overtime pay and minimum wage protections. These employees often work in fields like retail or service and have a manager or supervisor of some kind overseeing their work.
This type of employee is non-exempt, which means they are specifically protected by the FLSA, which governs minimum wage and overtime pay requirements.
Why Would an Employee Be Exempt?
Employees are considered exempt for a number of reasons, the primary one being payment. According to the Department of Labor, an exempt employee “must be paid at no less than $684 per week on a salary basis, or on an hourly basis at a rate no less than $27.63 an hour,” which comes out to about $35,568 per year.
If an employee is salaried, meaning they receive payment regardless of how many hours they work, they are also considered exempt. Additionally, an exempt employee generally works in administrative, executive, outside sales, or computer-related fields.
Quick Takeaways
If the concept of exempt employees is lost on you, you're not alone. The concept is understandably a bit confusing, but luckily, you've got Tech.co to walk you through some of the basics. Here are a few quick takeaways about exempt employees that should get you started on the right foot.
- Exempt employees are typically salaried while non-exempt employees are typically hourly
- Exempt employees are generally in administrative, executive, outside sales, or computer-related fields, while non-exempt employees are typically in service and retail industries
- Non-exempt employees qualify for overtime pay, while exempt employees do not
For even more information about why you need to know the difference between exempt and non-exempt employees, take a look at our payroll explainer guide to learn more.
Understanding Wage & Hour Laws
In this US, workers are protected by the Department of Labor when it comes to how many hours they work and how well they are paid for working those hours.
More specifically, the Federal Labor Standards Act established the federal minimum wage and overtime pay rules for all businesses in the country. However, there are different state laws that can impact your wage and hours, depending on where you live, but the federal laws are the minimum requirement for all of them.
What Is the FLSA Overtime Rule?
The FLSA specifically notes that any non-exempt employee that works for more than 40 hours per week is automatically entitled to time and half pay for those extra hours. If the non-exempt employee is not paid hourly, then an hourly wage will be deduced from the weekly or yearly salary based on the numbers of days worked.
What Is Misclassification?
Misclassification describes when a business does not designate its exempt and non-exempt employees correctly. This can have a decidedly negative impact on your business, as regulatory bodies will likely hit you with fines. On top of that, you leave yourself open to lawsuits from employees with unpaid overtime.
What Is Reclassification?
Reclassification describes the process of changing an exempt employee to a non-exempt employee, or vice versa. This may be necessary when it comes to promoting hourly workers to a salaried position. Given there are pros and cons to both, each form of reclassification can have an impact on your employee, so make sure to be clear about the reasoning behind reclassification.
Pros
- Typically make more money
- Pay can't be deducted for missed hours
- More flexible schedules generally
Cons
- Can't qualify for overtime pay
- More demanding work load
Verdict
The lesson to learn from this guide is that you don't want to mix up whether your employees are exempt or not. If you want to be sure, your best bet is getting set up with a payroll software that can manage your financial information, including which employees are exempt, and which ones aren't.
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