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The Difference Between Exempt vs Non-Exempt Employees

Have you heard of the Fair Labor Standards Act? It’s a federal law that sets the standards for minimum wage, overtime pay, record keeping, and child labor. It also classifies employees as exempt or non-exempt.

These laws can be tricky to understand, especially when it comes to differentiating between exempt and non-exempt employees. In this article, we’ll clear up the confusion and explain the key differences between these two types of workers.

Let’s get into it.

Fair Labor Standards Act: what is it?

In 1938, the Fair Labor Standards Act was introduced as a way to protect workers and ensure they were being treated fairly. The law sets standards for minimum wage and overtime pay, record keeping, and child labor.

Labor laws weren’t always as comprehensive as they are now. In fact, before the FLSA was introduced, there were no federal laws governing minimum wage or overtime pay.

The act has been amended a number of times over the years, but the basic principles remain the same. It’s important to understand these principles if you’re considering a career in the U.S. workforce.

What is overtime pay?

Before delving into the differences between exempt and non-exempt employees, let’s first take a look at overtime pay.

Overtime pay is a type of compensation that is given to employees who work more than a certain number of hours in a day or week. The Fair Labor Standards Act sets the standard for how much overtime employees should be paid.

a person holding money

For most employees, overtime pay is 1.5 times their regular wage. So, if an employee usually earns $10 per hour, they would earn $15 per hour for any hours worked over 40 in a week.

There are some exceptions to this rule, but the main thing to note is that overtime pay doesn’t apply to every employee across the board. It depends on the hours they work and their pay rate.

Exempt vs non-exempt employees

Let’s talk about the differences between exempt and non-exempt employees. The most important distinction to make is that exempt employees are not entitled to overtime pay, while non-exempt employees are.

Exempt employees are typically salaried workers who earn a set amount of money each month or year. They usually work in executive, administrative, or professional roles.

Non-exempt employees are typically hourly workers who are paid based on the number of hours they work. They may do manual labor or clerical work, and they usually earn less than exempt employees.

There are a few other key distinctions between these two types of employees. Exempt employees are usually given more flexibility in their hours, while non-exempt employees are usually required to work a specific number of hours each week.

Exempt employees are also typically not eligible for benefits like sick leave or vacation days, while non-exempt employees usually are. Lastly, exempt employees are considered “at-will” workers, which means they can be fired at any time for any reason. Non-exempt employees are not considered at-will workers and cannot be fired without just cause.

Why are some employees exempt?

You may be thinking: why are some people entitled to overtime pay and others aren’t? Isn’t that unfair?

Although it seems unfair at first, there is a reason for why some employees are exempt from overtime pay. The main purpose of the Fair Labor Standards Act is to protect workers and ensure they are being treated fairly.

Exempt employees are typically given more flexibility in their hours and benefits, and they are also ‘salaried’ employees. This means they are paid a fixed amount each month or year, giving them security and stability.

So, when everything is taken into account, the benefits tend to make up for the lack of overtime pay. Non-exempt employees, on the other hand, are typically paid an hourly wage and may not have as many benefits.

exempt vs non-exempt employees paperwork

Who is exempt?

Now that we’ve covered the basics, let’s take a closer look at who is exempt from overtime pay.

Exempt employees are typically salaried workers who earn a set amount of money each month or year. They usually work in executive, administrative, or professional roles.

Some common jobs that are typically exempt from overtime pay include:

  • CEOs — exempt due to their executive role
  • Administrators — exempt due to their executive role
  • Professionals — such as lawyers, accountants, and doctors
  • Computer professionals — exempt due to their specialized knowledge
  • Salespeople — exempt due to their commissions

Since these roles typically involve managing people or information, and are given salaries and benefits instead of hourly wages, they are considered exempt from overtime pay.

Conditions of making employees exempt

Aside from the general guidelines above, there are certain conditions that must be met in order for an employee to be considered exempt from overtime pay.

First, the employee must fit within one of the specific exemptions listed in the FLSA. Second, the employee’s job duties must primarily involve executive, administrative, or professional tasks. Third, the employee must earn a minimum salary level set by the DOL.

  • Executive exemption: for this exemption, the employee needs to be in a position of enterprise or department management, having authority over the work of at least two employees and carrying out tasks that require independent judgement.
  • Administrative exemption: this exemption applies to employees whose job duties include office or non-manual work directly related to the management or general business operations of the employer or its customers. This includes work such as preparing and maintaining records, analyzing data, or developing new procedures.
  • Professional exemption: employees in a professional capacity generally have specialized knowledge in their field, use critical thinking skills, and exercise independent judgement. The most common professions that qualify for this exemption are doctors, lawyers, teachers, and accountants.
  • Highly compensated employees: this applies to employees earning an annual salary of $107,432 or higher in a non-manual or office position. They also need to perform a minimum of one executive, administrative, or professional duty.
  • Computer exemption: if an employee is employed as a computer system analyst, programmer, software engineer, or other similarly skilled worker, they may be exempt from overtime pay if they meet specific requirements.
  • Outside sales exemption: employees who are primarily engaged in making sales or obtaining orders or contracts for services outside of their employer’s place of business are often exempt from overtime. All work must be completed away from the employer’s office in order to qualify.
a manager going over exempt vs non-exempt employee profiles

Are there any exceptions to the overtime requirements?

As with most labor laws, there are always a few exceptions. The FLSA includes some specific exemptions for certain types of workers, such as airline employees, farmworkers, and seasonal amusement park employees.

Let’s take a look at other employees who may be considered exempt:

  • Certain commissioned employees of retail or service establishments; auto, truck, trailer, farm implement, boat, or aircraft sales-workers; or parts-clerks and mechanics servicing autos, trucks, or farm implements, who are employed by non-manufacturing establishments primarily engaged in selling these items to ultimate purchasers
  • Employees of railroads and air carriers, taxi drivers, certain employees of motor carriers, seamen on American vessels, and local delivery employees paid on approved trip rate plans
  • Announcers, news editors, and chief engineers of certain non-metropolitan broadcasting stations
  • Domestic service workers living in the employer’s residence
  • Employees of motion picture theaters
  • Farmworkers

If you have specific questions about whether or not a certain employee is exempt from overtime, you can contact the DOL Wage and Hour Division for more information.

What if my employer abuses these exemptions?

From time to time, you may encounter an employer who abuses the exemptions from overtime pay. They may ask their employees to work unacceptably long hours, knowing they won’t be paid overtime.

If this happens to you, there are a few things you can do. You can contact the Department of Labor and file a complaint, or you can speak to an employment lawyer. You may also be able to file a lawsuit against your employer.

So, although exempt employees are not entitled to overtime pay, there are still ways to protect yourself if you feel like you’re not being treated fairly.

Who is not exempt?

Exempt employees are those in managerial, executive or professional positions — but who is not exempt? Typically, hourly or non-exempt employees are not exempt from overtime, although there are some exceptions.

Common non-exempt jobs include:

  • Hourly employees in manufacturing, construction or retail
  • Blue collar positions
  • Service workers, such as waitstaff and housekeepers
  • Laborers, such as drivers and janitors

Hourly employees are those who are paid by the hour and do not have a managerial role. Because they lack the stability and benefits of exempt employees, their overtime hours are protected by law.

An employee on the phone while working on their laptop

Final thoughts

There are many factors to consider when determining whether an employee should be classified as exempt or non-exempt. It is important to understand the difference between these classifications so that you can ensure your employees are being properly compensated for their time and effort.

The main points to remember are as follows:

If you are an employer with employees who are classified as exempt, you must pay them a salary that meets the minimum salary requirement set by the Department of Labor. If your employees are classified as non-exempt, you must pay them an overtime rate for all hours worked over 40 in a week.

Hopefully, this article has helped you to understand the difference between exempt and non-exempt employees. For more information, please consult the Department of Labor website or speak to an attorney.