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Classifying employees as exempt or nonexempt is a critical task for employers to ensure compliance with labor laws and establish fair working conditions. This distinction affects various aspects, including overtime eligibility, minimum wage, and employment rights. In this blog post, we will explore three general factors that play a significant role in determining exempt vs. non exempt employees.
What is the difference between exempt vs non-exempt
- Job Duties and Responsibilities:
The first factor to consider when determining what is a non exempt employee employees is the nature of their job duties and responsibilities. The Fair Labor Standards Act (FLSA) provides guidelines to differentiate between exempt and nonexempt employees based on their primary job functions. Exempt employees typically perform executive, administrative, professional, or outside sales duties.
Exempt employees are primarily engaged in managerial or supervisory roles, exercising independent judgment and decision-making authority. They are responsible for overseeing operations, setting policies, and directing the work of other employees. In contrast, nonexempt employees typically perform tasks that do not involve significant managerial or professional responsibilities.
- Salary Basis and Compensation:
The second factor to consider when determining what is a non-exempt employee is the compensation structure. Exempt employees are generally paid on a salary basis and receive a predetermined amount for each pay period, regardless of the number of hours worked. This fixed salary ensures that exempt employees are compensated for their overall contribution and not just the number of hours worked.
Nonexempt employees, on the other hand, are usually paid on an hourly basis and are entitled to receive overtime pay for any hours worked beyond the standard 40-hour workweek. They receive an hourly wage that meets or exceeds the applicable minimum wage requirements.
- FLSA Guidelines and Regulations:
The third factor involves understanding the guidelines and regulations outlined in the Fair Labor Standards Act. The FLSA provides specific criteria and exemptions that determine whether an employee qualifies as exempt or nonexempt. It is essential for employers to familiarize themselves with these guidelines to ensure accurate and compliant classification.
The FLSA regulations consider factors such as job duties, salary level, and salary basis. While job duties have already been discussed, the FLSA also establishes a minimum salary threshold for exempt employees. Currently, this threshold is set at $684 per week (or $35,568 annually) under federal law. However, it is important to note that certain states may have higher salary requirements.
Read the scenario below and see if you are able to identify if Sara or John is an exempt employee.
It is finally Friday night but Sara, a newly-employed editor at ABC Creative Studios is feeling a little stressed out. She has not finished her proposal that is due on Monday. Since she did not make any plans with anybody that night, she spent most of her Friday night editing and working on her proposal. On Monday – the day she gets her paycheck – she found out she got the same amount of money she would have gotten if she hadn't stayed late.
Meanwhile on the same Friday in the same building, John, a maintenance worker, chooses to take an extra shift and work overtime. He doesn't have to, he could leave at 5p.m. if he wanted. However, on Monday, when he receives his paycheck, he knows he'll receive extra money from the overtime hours he had worked.
If you recognized that Sara is an exempt employee while John is non-exempt, you are right. An exempt employee is an employee who is exempt from overtime pay and/or minimum wage, and other rights and protections afforded to nonexempt workers. They are usually paid a salary rather than hourly wage. The most common FLSA exemptions are also known as "white collar exemptions". Typically, exempt employees take up executive administrative, professional, outside sales positions in the company.
Currently, according to the test guidelines provided by the website of FLSA, an employee has to make at least $455 a week ($23, 660 a year) [1] to be exempt. An exempt employee must be paid the same amount, or a minimum salary regardless of how many hours they work or how well they perform. They are not paid extra for putting it more than 40 hours per week, they're paid for getting the job done. For example, Sara is offered a basic salary with bonuses as further compensation.
The benefits of course are obvious. Sara does not have to be concerned about what a drastic drop in hours worked that week will do to her paycheck. Furthermore, since they are compensated for the jobs they do and not the time it takes them, they often have a more flexible work environment than non-exempt employees. Sara's employer is understandably more interested in whether Sara completes her given task that week, such as finishing her proposal, instead of how long she took for her lunch break or if she left early the previous Friday.
Let us talk about John now, who is compensated by the time he works. Non-exempt employees like John, as the term implies, are non-exempt from FLSA requirements. Employees in this category must be paid at least the minimum wage for each hour worked and given overtime pay of no less than one-and-a-half times their hourly rate for any hours worked beyond 40 each week. Although they typically receive hourly pay, employers can also pay them on a salary basis. They could also work in any field, although some sources indicate that most non-exempt employees are blue-collar workers.
Non exempt vs exempt employee tests
To reiterate, whether employees are exempt or non-exempt are dependent on these three "tests":
1. Salary level test
Employees who are paid less than $23,600 are non-exempt.
2. Salary basis test
If an employee has a "guaranteed minimum" amount of money he or she can count on receiving for any work week, the employee is exempt.
3. The duties test
An employee who meets the two tests above is exempt only if he or she also performs exempt job duties. These FLSA exemptions are limited to employees who perform relatively high-level work. Do note that job titles or position descriptions are of limited usefulness in this determination.
The three typical categories of exempt job duties are:
a) Executive job duties
Employee regularly supervises two or more other employees, has management as the primary duty of the position, and has some genuine input into the job status of other employees.
b) Professional job duties
Usually means work which is predominantly intellectual, requires specialized education and involves the exercise of discretion and judgement. Some employees may also perform "creative professional" job duties which are exempt, such as actors, musicians, composers, journalists, writers. (do note that this is not an exhaustive list.)
c) Administrative job duties
This classification is designed for relatively high-level employees whose main job is to "keep the business running". Examples include labor relations and personnel (human resources employees), payroll and finance, records maintenance, accounting and tax, marketing and advertising, just to name a few.
Final Thoughts
In general, both exempt and non-exempt employees receive basic protection from state and federal laws, but non-exempt employees enjoy better legal protection from the government. Unemployment benefits vary from state to state, but generally both exempt and nonexempt employees can collect unemployment benefits. Do check with your state's Department of Labor for more detailed information. Tax liabilities are the same for both categories as all pay is "earned income" and therefore taxable to the wage warner based upon the tax bracket.
Whether you are an employee or an employer, as members of the workforce it is best to be informed. This article is intended to be a primer on this issue, but for more information, please visit the Department of Labor's site to address federal and state laws specific to your state.
[1] Please note at this point to check applicable state laws as the salary basis requirements may vary.
