Exempt vs. Non-Exempt Employee

What’s the difference?

You’ve heard the terms exempt employee and non-exempt employee, but do you know the difference between the two? It’s important to understand the distinction, from both the employer and employee standpoint.

The most significant difference is overtime pay. Non-Exempt employees must receive payment for overtime work, whereas Exempt Employees do not.  But, it’s a little more complicated than that, so let’s get to the good stuff.

Non-exempt Employees

According to the Fair Labor Standards Act (FLSA), non-exempt employees must be paid at least minimum wage and overtime pay for any time worked over 40 hours in a work week. Overtime pay rates for non-exempt employees must be no less than time and a half for each hour of overtime.  The FLSA states you cannot request “off the clock” work from non-exempt employees either.

Some hourly jobs, like many types of agricultural workers for example, are excluded from non-exempt status. Truck drivers are another example of those not covered under FLSA, they are instead governed by the Federal Motor Carrier Safety Administration.

Exempt Employees
Steven Harris, Managing Partner of Journey
Classifying an employee as exempt is a little bit trickier. There are three employment tests that the employee must pass in order to qualify as exempt. The first is salary level. You must pay an exempt employee at least $455 per week or $23,600 annually. This salary is not based on hours; meaning the amount is always the same, regardless of hours worked. This is why they cannot collect overtime pay. Steven Harris, Managing Partner of Journey, explains how these distinctions can sometimes cross paths.  “Fun Fact.  It is absolutely possible to have a non-exempt employee paid on salary.  Be careful, though, putting a non-exempt employee on salary does not mean that you don’t have to track their time.  If they work less than 40 hours in a workweek, a salaried non-exempt employee would be paid at the full 40 hours.  However, if they work more than 40 hours, they are still entitled to overtime.  Overtime laws can vary depending on your state, so as always, reach out to the Journey Team to ensure that you are staying in compliance with the FLSA.”

The second test looks at job duties, which fall under three categories: executive, professional, and administrative.

Executive

If an employee’s job responsibilities include the following, he or she is exempt from FLSA rules:

  • The primary duty of the position is management.
  • The employee supervises at least two other employees.
  • They provide genuine and significant input regarding other employee’s job status, such as hiring and firing decisions, assignments, etc.
Professional
Attorneys, doctors and registered nurses, architects, and teachers are all examples of exempt professionals.  Typically, these are positions that require advanced education and/or training, and often require judgement and discretion during the course of performing duties. Creative professionals such as actors, musicians, graphic designers, writers, and journalists also fall under this category. Their jobs require talent and/or imagination or some other unique contribution to the employer. Keep in mind that this test does not include skilled trades or positions that do not require college or postgraduate degrees.
Administrative
Administrative employees support business functions. Think of HR staff, or payroll and accounting departments. These employees do not directly produce whatever product or service the company sells, but they function at a much higher level than employees performing simple clerical work. Exempt administrative duties as defined by the FLSA, are office or non-manual work that is directly related to general business operations or management of the employer or its customers. These duties would involve the exercise of discretion and judgement as a primary component regarding significant matters. The Obama administration proposed changes to overtime pay—increasing the annual salary level to $47,476 (or $913 per week) and updating the salary threshold for eligibility every three years based on wage growth (starting on January 1, 2020).  The Trump administration has challenged these proposals,  postponing them in court. Regardless of any new or pending rules, correctly classifying your employees as exempt or non-exempt can save a lot of headaches down the road. Make sure your employees understand the difference right off the bat.  
About Journey Employer Solutions

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