As an employer, you've probably heard about exempt and non-exempt employees at least once. That's because all employees fall into one of these two categories.
The simplest explanation for the difference between an employee classified as exempt and an employee classified as non-exempt is that "exempt" employees do not qualify for overtime and/or minimum wages. Non-exempt employees must receive minimum wage and overtime for all hours they work. However, there are many other details to consider for exempt and non-exempt employees.
The U.S. Department of Labor (DOL) has attempted to update the regulations governing overtime exemptions. Read on to learn more about the proposed regulations’ status, and how to distinguish exempt and non-exempt employees as defined under the FLSA.
Need a more in-depth explanation about exempt and non-exempt employees under the FLSA? Download a free explanatory slideshow.
What is the Difference Between an Exempt and Non-Exempt Employee?
This article specifically covers federal standards for employee classification under the FLSA. Both federal and state standards govern how to classify members of your workforce.
Check your state’s specific laws to make sure you’re staying compliant — they are often detailed on the webpages maintained by state wage enforcement agencies.
Below, you can check out a short video on exempt vs non-exempt status under the FLSA.
Note: This video discusses the basics regarding white collar exemptions under the FLSA, a federal law. Some states and local jurisdictions have their own wage and hour laws, which may provide greater protection for employees than what is provided under federal law. Generally, where federal, state, or local laws conflict, the law that is most beneficial to the employee governs. If necessary, check with counsel to ensure you have correctly classified your employees. Justworks does not provide legal advice.
This video covers:
- [0:00 - 0:15] A brief description of the FLSA
- [0:16 - 0:28] Minimum wage and overtime requirements
- [0:29 - 0:38] Basic definition of exempt employees
- [0:39 - 0:54] Different types of "white collar" exemptions
- [0:55 - 1:24] The job duties test
- [1:25 - 1:39] The salary basis test
- [1:40 - 1:48] Salary level
- [1:49 - 2:15] Overview of the three tests to be exempt
- [2:16 - 2:42] Summary and where to go for more information
What is an Exempt Employee?
An exempt employee is an employee who is exempt from overtime pay and/or minimum wage.
The most common FLSA exemptions are referred to as ‘white collar exemptions.’ What’s a white collar exemption? The term commonly refers to exemptions for executive, administrative, professional, outside sales, and computer professional employees.
Explain the basics of exempt and non-exempt employees with this visual guide.
In general, an employee must meet all the standards of three different tests to qualify as exempt from minimum wage and overtime pay.
Those three tests include:
- Job Duties
- Salary Basis
- Salary Level
For each exemption category, there’s an associated job duties test set forth in the FLSA regulations. The job duties tests have many detailed components that are specific to each white collar exemption. Most exemptions, though, require that the employee regularly exercise discretion and independent judgment in performing her job duties.
Next, there’s the salary basis test. In general, an exempt employee must be paid a fixed salary for certain exemptions. That means her salary won’t reduce due to the quality or quantity of work she performs.
With limited exceptions, an exempt employee must be paid a salary that meets the minimum threshold under the FLSA.
Currently, an employee must make at least $23,660 a year ($455 a week) to meet the salary threshold requirement under the FLSA. An exempt employee generally must be paid the same amount for any week in which the employee performs any work, regardless of the number of days or hours worked.
However, as we’ll detail below, the minimum salary level for exempt employees may be raised, depending on a pending court case.
What is a Non-Exempt Employee?
Non-exempt employees must receive at least the minimum wage for all hours worked and overtime pay. Generally, employees are considered non-exempt unless an exemption applies.
Although non-exempt employees typically receive hourly pay, employers can pay them on a salary basis and pay applicable overtime.
Under federal law, when a non-exempt employee works more than 40 hours in a workweek, overtime must be paid at 1.5 times the employee’s regular rate of pay. For example, if an employee worked 60 hours, he would receive his regular rate of pay for 40 hours plus an additional 20 hours at the overtime rate.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.