Exempt vs Non Exempt employees: What are the differences?

April 7, 2022

As an employer with exempt employees it is important to ensure your workers have a good work life balance

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What is the difference between exempt and non-exempt employees? If you own a business this can make an impact on your employees overtime pay, healthcare benefits and more! It is important to take in consideration the status of your employees as it can affect how easily you can hire and keep employees and impact your business overall financially. Keep reading to find out more!

What is an Exempt Employee?

When it comes to your employees, what does exempt mean? And how does it impact your business? Well, an exempt employee is one who will not receive overtime provisions of the Fair Labor Standards Act due to being classified as an executive, administrative, professional or outside sales employee. 

Let’s break that down a little. To make this more simple an exempt employee does not qualify for overtime pay or minimum wage due to being salaried. All exempt employees MUST be salaried however making them salaried does not automatically qualify them as exempt. (There may be other qualifications that make an employee exempt. If you have questions check out US Department of Labor, Wage & Hour Division’s website.)

Pros of Exempt Employees

There are several pros to having exempt employees/salaried employees for the employees themselves but also for your business as a whole. 

  • Salaried employees make accounting and finance more straightforward and simple
  • A salary guarantees security and stability for employees
  • Exempt employees receive extra benefits such as retirement accounts including a 401K, IRA’s, pensions and bonuses. Other benefits include healthcare plans, sick leave and paid time off. 

So if you’re wondering “are salary employees exempt?” Yes, they are. But the upsides of not being exempt give the employee stability and a plethora of benefits through their company.  Consistent payment means your accounting/financials are a bit more.

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Cons of Exempt Employees

The cons of exempt employees is that employees are not eligible for overtime. Some employers may require more than 40 hours a week and if employees are exempt they will not be compensated for the extra time. As an employer with exempt employees it is important to ensure your workers have a good work life balance and even though they can work more than 40 hours a week, that they are not being overworked. This will help with employee satisfaction and overall workplace positivity. 

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What is a Non-exempt Employee?

If you need more clarity on exempt vs non exempt employees, let’s go over what having non exempt employees looks like. 

A non-exempt employee is one who is NOT exempt from overtime provisions of the Fair Labor Standards Act and will receive payment for all hours worked beyond a 40 hour workweek. Non-exempt employees are usually paid on an hourly basis.

Pros of Non-Exempt Employees

A pro of non-exempt employees is that they are eligible for time and a half (1.5x) their regular rate of pay whether that be minimum wage or $25 an hour. After they’ve exceeded their 40 hour work week employees are eligible for this 1.5x pay. This means the employee will be compensated extra for all work performed outside of their 40 hours. This can be an excellent incentive for employees to pick up shifts in a pinch or just in general to get them into work more when things are busy. 

Cons of Non-Exempt Employees

Despite having time and a half pay non-exempt employees may not have access to benefits such as health insurance, and retirement such as IRA’s and 401k’s. If you have non-exempt employees it is important to let them know this when you are hiring them. 

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Which is better for a small business?

There is no right answer to this question as it is usually related directly to the business, their services and their budget. Exempt employees are usually paid more than nonexempt employees because they have to complete their work regardless of hours and more so based on deadlines.

Related:  Backing Up Your Peace of Mind: The Importance of Records Keeping

If you have a small start up business take time to examine if your employees will be working 40 hours a week, if not you may want to have non-exempt employees as it will be most cost effective for your business!

Journey Payroll & HR is here to help your small business!

We know starting a business takes a lot of work and Journey Payroll & HR is here to help you along the way. Whether you have questions on exempt employees, HR, time clocks or payroll our range of services can cover any need you have. We look forward to working with you and watching your company flourish. Contact us today!

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