What’s the difference between an exempt and non-exempt employee?

What’s the difference between an exempt and non-exempt employee?

The Fair Labor and Standards Act (FLSA) is a law that establishes minimum wage, overtime, record-keeping, and other standards affecting employees. They have two classifications for employees:

• Exempt
• Nonexempt

The difference between these two is important and you should understand how you should be classifying your employees. Here’s a handy reference guide on the Department of Labor (DOL) website. At a high level, here are the differences between an exempt employee and a nonexempt employee.

Exempt employees:

• Do not have to be paid overtime
• Must be paid a salary that does not change
• Must have administrative duties or one of the other roles in the list below
• Must be paid above $684 a week ($35,568 per year)

Nonexempt employees:

• Must be paid overtime
• Must be paid a minimum wage
• Must follow all Fair Labor and Standards Act (FLSA) laws

What is an exempt employee?

What are they exempt from? The FLSA requires that employees be paid a minimum wage and must be paid overtime of one-half the regular rate of pay for all hours worked over 40 hours in a week (and potentially other standards set in some states like California).

However, exempt employees do not have to follow the FLSA rules. They are not paid overtime and may not be required to have a minimum wage. Employees who have certain types of jobs and a certain minimum salary can be exempt from the FLSA rules.

What types of employees are exempt?

Exempt status is linked to an employee’s specific salary, duties, and independence over their work. The Department of Labor outlines the requirements needed to classify an employee as exempt. They can be grouped into three categories:

• Be paid a salary that does not change
• Have a “white-collar” position: executive, administrative, professional, computer, or outside sales roles
• Be paid above the minimum rate of $684 per week ($35,568 per year)

There are specific types of employees who are exempt from both the minimum wage and overtime rules and other types of employees who are exempt only from overtime rules. You can see more employee types that are covered on the Department of Labor (DOL) website.

What is a nonexempt employee?

The opposite of an exempt employee! Nonexempt employees must follow the Fair Labor and Standards Act (FLSA) rules and be paid above the minimum wage and must be paid overtime of one-half the regular rate of pay for all hours worked over 40 hours in a week. Again, review your states' overtime and minimum wage laws. For example, California has additional laws that require overtime pay on the seventh consecutive day worked and double overtime (2x regular pay) for any hours worked over 12 hours in a day.

Do I need to track overtime for exempt employees?

No, you don’t need to track time for your nonexempt employees. However, you will need to be required to keep records that these employees are making above the minimum salary. The Department of Labor does not explicitly state how you should keep the records for exempt employees. However, if you have employees who are close to the minimum salary ($684 per week), you should have those employees track their time.

Do I need to track overtime for nonexempt employees?

Yes, the Department of Labor requires specific records to be kept for at least three years. This includes more than just overtime pay. The list below includes a few of the items that must be maintained by employers, but you can see the full list here:

• Hours worked each day
• Total hours worked each workweek
• Basis on which employee's wages are paid (e.g., "$9 per hour")
• Total overtime earnings for the workweek
• All additions to or deductions from the employee's wages
• Total wages paid each pay period
• Date of payment and the pay period covered by the payment

Tracking this information can become an administrative headache if you’re not using a payroll platform to calculate and store this information online.

Also, if you have nonexempt employees who keep a regular fixed schedule (e.g., they always work the exact same 20 hours per week), you still need to track their time. However, the employer may track exceptions to the fixed schedule instead of having the employee track every hour.

Wrapping it up

Exempt versus nonexempt classifications are important to stay compliant with laws as an employer. There are more details on the employee classifications (e.g., does a taxi cab driver get paid overtime?), overtime rules per state (e.g., what should overtime pay be for an employee who works every day of the week in California?), and minimum wage requirements in the fine print of the regulations. In addition, every state may have their own standards above and beyond what the Department of Labor defines. It’s always a good idea to check with a lawyer or HR expert if you have questions.

Have questions about your employee’s exemption status? Have other questions about HR, payroll, or benefits? Spring can connect you with an HR expert to help!

Disclaimer: Any articles written on this website, including this article, are not to be taken as legal or HR advice. Employment laws are constantly changing and vary by location and industry. You should consult a lawyer or HR expert for guidance. Need HR advice? We can help!

📸 Photo by Christina on Unsplash