What Is the Difference Between Exempt and Non-Exempt Employees?

What Is the Difference Between Exempt and Non-Exempt Employees?

What Is the Difference Between Exempt and Non-Exempt Employees?

Updated 27 September 2020

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Employment laws are incredibly complicated because there is no definitive set of laws. While there are standards set by the government, each state also has its own rules and regulations.

The Fair Labor Standards Act (FLSA) provides an outline of what employees should expect in terms of pay and working hours. It states that employers are required to classify whether a role is exempt or non-exempt.

Depending on the classification, you will either be entitled to overtime pay or not. But regardless of exempt or non-exempt, there is a minimum wage that employers must meet, which is $7.25 per hour.

Factors that determine whether you are exempt or non-exempt are:

  • How much money you earn
  • The type of work you do
  • The responsibilities and duties of the job role
Exempt and Non-Exempt Employees

What Qualifies as an Exempt and Non-Exempt Employee?

Exempt Employees

Exempt employees are not entitled to any overtime as the expectation is that you complete your tasks regardless of the amount of time it takes.

These roles are often referred to as 'white-collar' and are skilled or trained professionals.

As of January 2020, the job positions are (but are not confined to):

  • STEM
  • Salespeople
  • Administrative
  • Executive and Professional

You must earn a salary of $35,586 per annum ($684 per week).

However, it is not only the job title and salary that decides your exemption, your duties also play a large part:

  • STEM – Your role is a systems analyst, software engineer, computer programmer or similar.

  • Salesperson – You are making sales or obtaining contracts, and you work away from the place of business.

  • Administrative – Your primary duties include matters of significance, and your role is office-based and non-manual.

  • Executive – You have the primary duty of managing a business, department or subdivision. You have the authority to employ or terminate.

  • Professional – Your work is specialized and requires you to have advanced knowledge.

Pros and Cons

The downside of being exempt is that you are not paid for the hours you work, but rather the task you have to complete. Working weeks are not consistent and there is no limit to the amount of overtime you may have to do.

The benefits are that exempt job positions are usually higher-paid and you can work more independently. There is less micro-management as any superiors know that the work will get done regardless of their input.

You might be able to take longer lunches, have more breaks or work flexible hours.

Non-Exempt Employees

Traditionally, non-exempt employees receive a wage per hour as opposed to a salary. They are protected by FLSA rules and regulations, the primary one being that any overtime is to be paid at one and a half times the minimum wage.

Overtime is anything over 40 hours per week.

Employers may also use bonuses and incentives instead of in lieu.

Pros and Cons

The benefit of being a non-exempt employee is that you get paid for the time you work.

If your place of work has the option, this means you can supplement your paycheque with extra working hours. Retail workers often receive overtime during holiday periods.

The disadvantage is that your superior may push you to get work done quickly, so they don't have to issue overtime.

Breaks and lunches may also be limited and assigned. In some cases, overtime may be discouraged or limited.

It is also important to note that overtime is considered anything worked over the 40 hours per week limit. Part-time workers may not receive the time and a half wage increase for their overtime.

This information should be clarified by your employer during the recruitment stage.

Exemptions to the Exemptions

Of course, this is labor law, and that can get complicated.

There are no set rules for interns, independent contractors, temporary workers, volunteers, workers-in-training and foreign workers. As a result, these groups are often exploited.

Interns and volunteers usually work for free, and in some industries, it is considered a 'right of passage' to do long, unsocial hours.

Depending on their employment status, foreign workers may not be covered by federal or state legislation.

Other groups that may fall into the exemption category, under certain circumstances, are:

  • Certain retail or service establishment employees
  • Railroad, air carrier and taxi employees
  • Announcers, news editors and the chief engineers of some broadcasters
  • Movie theatre employees
  • Farmworkers

Sometimes, extra or different tests will apply to determine these exemptions. At the time of recruitment for any of these positions – or similar – ask the details of the classification.

There are also state laws to consider.

Generally speaking, state laws benefit the employee more than federal. Salaries and wages should never be less than FLSA guidelines.

California, for example, has its own minimum wage of $12.00 per hour, and in some situations, the overtime pay is two times the minimum pay.

Exempt and Non-Exempt Employees

What Happens If the Business Closes?

The 2020 Covid-19 pandemic has raised a lot of issues among employers and employees.

As businesses were forced to close, many questions were asked about whether people should be paid or not.

According to the FLSA, if a business closes, then the company is under no obligation to pay their non-exempt employees, unless they are working remotely. In that case, you will be paid for the hours you work.

For this situation, it is advised that you make a detailed record of the times you worked, with evidence if possible.

If you are an exempt employee, then you should receive your full salary regardless of how many hours you work, so long as you have completed some work.

Consequences of Incorrect Classification

Employers are legally obliged to state whether a role is exempt or non-exempt in their job adverts.

Misclassification can result in penalties, fines and back pay for the employer.

Technically speaking, it is the employer's responsibility to keep up-to-date with the regulations. However, it is still beneficial for you to know your rights.

Where Can I Find More Information?

Knowing your rights could avoid any unpleasant situations in the future. You would not want to find that you have been incorrectly paid, or that all the extra hours you have worked are not financially compensated.

The Department of Labor contains all the up-to-date information and helpful fact sheets.

Work Lawyers is specific to California and has all employment laws in an easy to understand format.

Each state has its own government webpage that has employment rules and regulations, as well as contact numbers and helplines.

Local job centers can also provide information for exempt and non-exempt job roles and employment laws.

If you are in education, career departments should be able to provide detailed information.

Final Thoughts

So, which is better, exempt or non-exempt employment?

Both classifications are subject to the standards issued by Federal Child Labor Laws and the Family and Medical Leave Act. Both are treated in accordance with the right to a safe and healthy work environment and the right to equal employment opportunities.

The tax boundaries are also the same. If you are non-exempt and you do receive overtime pay then you will be taxed accordingly. No overtime pay is tax-free.

Both classifications can collect the same unemployment benefits.

Ultimately, being exempt or non-exempt is not a choice.

If you work in a high-level managerial position or a role like an Events/PR Manager, overtime is part of the job description. You need to attend out of hour events, stay back for extra meetings or complete any other duties your role demands.

These things are part of your duties, and your salary should reflect the expected overtime.

If your work is less specialized and you receive a wage, then you will more than likely be non-exempt.

There will be occasions where you are non-exempt but receive a salary.

According to the information available, your salary will be less than $35,586. If your overtime hours take you over this threshold, then it is recommended you check with your HR representative about your status.

To find out more about what your salary should be, and to see how salaries fare across the country, read our article on the average salaries in the US.

By Hayley Ashworth Hayley Ashworth