Exempt vs. Non-exempt Employees: What’s the Difference?

Classifying your employees can feel like an easy part of managing your team. Choosing an employee’s department, how they get paid, their job title, and whether they’re full-time or part-time are just a few examples of how businesses commonly classify their employees. Seems pretty simple, right? Well, some classifications are not so easy. One of the trickiest employee classifications is determining whether or not an employee is considered to be exempt or non-exempt: a critical sorting that helps establish how an employee is paid and whether they’re eligible for overtime pay.

Some people may shrug and think, “That’s easy. If they are paid hourly, they’re non-exempt; if they’re paid salary, they’re exempt.” But the Fair Labor Standards Act (FLSA), the labor law that governs several aspects of compensation such as minimum wage, overtime pay, and recordkeeping, dictates that there’s much more to be considered when categorizing an employee as exempt and non-exempt.

What’s the Difference Between Exempt and Non-exempt?

Before we get to the nitty-gritty, let’s first go over the difference between an exempt and non-exempt employee:

Exempt Employees

An exempt employee is an employee that is “exempt” from the FLSA, meaning exempt employees are not entitled to overtime pay. 

There are a few provisions that come along with being classified as an exempt employee. First, the minimum salary to be paid to an employee to be considered exempt is at least $684 a week, or $35,568 per year (as of January 2020). Some states, like New York, Maine, Colorado, Alaska, California, and Washington, establish their own compensation criteria for exempt classification. Exempt employees also receive a fixed salary, meaning that their base salary won’t change due to the quantity or quality of the work they perform. 

It’s not just how much you make, though; it also matters what kind of job functions you perform. The FLSA outlines qualifiers for exemption from both minimum wage and overtime pay for employees who fall under specific “exemptions.” These exemptions include Executive Exemption, Administrative Exemption, Professional Exemption, Computer Employee Exemption, and Outside Sales Exemption. 

Non-Exempt Employees

On the other hand, a non-exempt employee is an employee who is “not exempt” from the FLSA and therefore is eligible to receive overtime pay. These employees typically perform more technical or manual duties, such as retail, mechanical, or clerical duties, as defined by the FLSA. Non-exempt employees must be paid at 1.5 the employee’s regular rate of pay if the employee works more than 40 hours in a workweek, under federal law.

To make things even more intricate, the FLSA has additional specific provisions when it comes to Highly Compensated Employees, Blue Collar Workers, Police, Firefighters, Paramedics, and Other First Responders, and Collective Bargaining Agreements.

Determining the Exempt or Non-Exempt Status of Employees

The criteria to establish whether an employee is classified as exempt or non-exempt is robust, and the Department of Labor provides employers with guidance to help you determine if your employee is eligible for overtime pay or other benefits associated with being a non-exempt employee.

It’s important to keep a couple of facts in mind when classifying employees:

• Paying your employees a salary versus hourly pay does not automatically mean they are exempt from overtime pay. Salaried employees could still be considered non-exempt employees if they do not meet eligibility requirements for exemption under the FLSA. 
• Employees’ job titles do not automatically determine whether an employee is exempt or non-exempt. For example, retitling a receptionist whose primary duties include greeting customers, filing, answering phones, scheduling appointments, or putting together information packets as an “Executive Office Manager” or “Operations Director” will not excuse the employee from overtime pay. As mentioned, the primary rules for exemption are robust, so they should be carefully evaluated.

Implications of Misclassifying Employees as Exempt or Non-exempt

There are serious consequences to consider for misclassifying employees, which is a surprisingly common mistake many organizations make. Consequences for the misclassification of employees can include:

• A lawsuit for unpaid wages or overtime wages: Employees may also file a complaint with the Department of Labor, resulting in unforeseen legal costs, back pay owed, and payment of other benefits the employee may have been entitled to.
• Hefty fines from the Department of Labor: For example, employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to a civil money penalty of up to $1,000 for each such violation.
• Damaged reputation: Complaints and lawsuits of this nature could hurt your relationship with existing employees, clients, and customers, as well as the public’s view of your company, and it may make it difficult to attract new talent.

Examples of Exempt and Non-Exempt Employees

A few common examples of exempt employees may include:

• Executive Officers (like the CEO, COO, and CFO)
• Associate or Senior Attorneys
• Operations Managers
• Accountants
• Human Resources Managers
• Doctors
• Professors or Teachers

Common examples of non-exempt employees may include:

• Warehouse Associates
• Mechanics
• Retail Workers
• Administrative Assistants
• Paralegals or Law Clerks
• Construction Workers
• Customer Service Representatives

Benefits Comparison for Employees and Employers

Both exempt and non-exempt statuses have different benefits. For example, exempt employees tend to have more flexibility, more professional development opportunities, and the potential to earn higher wages. However, non-exempt employees benefit from their eligibility to receive overtime pay and are specifically compensated for the amount of time they work.

For employers, there are similar benefits. Exempt employees give employers a more predictable payroll, and exempt employees bring the ability to take on more or different responsibilities based on business needs. Though your payroll expenses may vary more for non-exempt employees, you’re only paying employees for the hours they work. At the end of the day, employers can determine what type of employee is most suited to meet their business goals.

Conclusion

Classifying an employee as exempt or non-exempt is an integral business facet that business owners should not take lightly. The FLSA is a complex law, so you don’t have to make the decision alone. Reach out to us to discuss how our seasoned HR professionals can help guide you in the right direction.