Exempt vs. Non-Exempt Employees: What Are the Differences?

Q: Is it better to be exempt or non-exempt?

There is no one -size-fits-all answer to this question. Depending on your job duties and employer , you may be better off as an exempt employee or a non-exempt employee . However, non-exempt employees are typically entitled to overtime pay , while exempt employees are not.

ByJulija A.

February 28,2022

Exempt vs. Non-Exempt Employees: What Are the Differences?

There are many differences between exempt and non-exempt workers, but the key distinction is their eligibility for overtime pay. Exempt employees are paid a salary and are not eligible for overtime pay, while non-exempt employees receive an hourly wage and are entitled to overtime. To figure out where you stand in the food chain, it’s important to have a broader understanding of these terms. In this blog post, we’ll delve deeper into the exempt vs. non-exempt employees comparison and some of the protections they are entitled to under the law.

Fair Labor Standards Act and Exemption Status

The Fair Labor Standards Act establishes the minimum wage, overtime pay, recordkeeping, and child labor standards for full-time and part-time workers in both the public and private sectors across the United States. The original version of the FLSA was passed in 1938, and the legislation is intended to protect workers from unfair labor practices. It applies to “any individual employed by an employer” except for independent contractors and volunteers.

The FLSA establishes that all employees are automatically entitled to overtime pay unless an exemption applies. There are many categories of exempt employees, but the most common ones include the executive, administrative, and professional exemptions. These are also known as “white-collar” or EAP exemptions. However, the job title alone does not determine exemption status. To be exempt, an employee must meet specific job duties and salary requirements set by the Department of Labor.

In 2019, a proposal was unveiled to update regulations on EAP exemptions. The updates went into effect in January 2020, raising the standard salary level threshold for exemptions from $455 per week to $684 per week (or $35,568 annually). This means that employees who earn less than this amount are now considered non-exempt and eligible for overtime pay.

The overall compensation threshold for highly compensated employees was also increased from $100,000 to $107,432 per year, and employees can now use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary level, as long as those payments are made on a quarterly or more frequent basis.

Exempt Employees

Exempt workers are not covered by the Fair Labor Standards Act, and as such, are not entitled to overtime compensation under federal law. What's more, the majority of states have their own overtime laws and requirements that can either be more or less stringent than the federal FLSA. For example, in California, exempt workers must be paid at least twice the state minimum wage for full-time employment (40 hours per week).

Types of Exempt Employees

Exempt employees are typically salaried professionals who are managers or executives and enjoy certain privileges not given to hourly employees. Exempt employees include:

- Corporate executives

- Professionals such as doctors, lawyers, and teachers

- Salespeople who earn a commission income

- Certain computer employees

To be exempt under the FLSA, an employee must pass all three of the following tests:

- The salary basis test requires that the employee is paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.

- The salary level test requires that the employee be paid at least $684 per week, which is equal to $35,568 annually for a full-year worker. This amount will automatically adjust every three years based on changes in inflation and cost of living.

- The duties test requires that the employee's job duties meet specific criteria as outlined by the Department of Labor.

If an employee is considered exempt, the employer has no obligation to pay the employee overtime. It is instead up to the employer to decide whether to pay the employee a salary for working fewer hours or an hourly wage for working longer hours. In certain cases, employers may offer other benefits in addition to overtime pay. If you're frequently asked to work late, you might be able to negotiate a raise.

Labor laws covering other classifications of employees are slightly more complex. There are several additional federal, state, and FLSA rules that employers must follow when it comes to interns, independent contractors, temporary workers, volunteers, trainees, foreign laborers, and exempt occupations.

Non-Exempt Employees

A non-exempt employee is covered by the Fair Labor Standards Act and is entitled to overtime pay when working more than 40 per week. Non-exempt employees are also entitled to minimum wage ($7.25 in 2022) for all hours worked and are typically eligible for time-and-a-half pay for any hours worked over 40 in a week.

Non-exempt employees are typically hourly workers who may or may not be paid a salary. They include:

- Retail and service employees

- Restaurant employees

- Warehouse employees

- Factory workers

The FLSA requires that all employers track the hours worked by non-exempt employees. This can be done using time clocks, time cards, or some other method. Employers are also obligated to display an official poster outlining FLSA requirements. Regardless of how you hire someone, explaining how you plan to track the hours should be included in the employee handbook.

The FLSA also requires that employers pay overtime to non-exempt employees at 1.5 times their usual hourly rate. This means that an employee who makes $15 per hour should be paid $22.50 per hour for working more than 40 hours per week.

Exceptions to the Overtime Rules

In certain cases, employers are not required to pay overtime, even for non-exempt employees. These exceptions extend to:

- Federal and state government employees

- Certain transportation workers (truck drivers, taxi drivers, etc.)

- Workers who earn commissions in certain states; these workers must receive at least one and a half times the minimum wage for all hours worked.

- Employees who are paid on a piece-rate basis

- Employees of seasonal amusement or recreational establishments, such as ski resorts and summer camps

- Certain farmworkers

The overtime rules do not apply to interns unless they are performing the same work as regular employees. If an intern is doing the same work as other employees, he or she must be paid overtime.

Independent Contractors

An independent contractor is a worker who contracts with an employer to do work, often on a project-by-project basis. Unlike employees, independent contractors are not covered by the FLSA and are not entitled to overtime pay or minimum wage protections.

There are several factors that courts use to determine whether a worker is an employee or an independent contractor, including:

- The degree of control the employer has over the work performed

- The amount of independence the worker has in determining how to complete the work

- Whether the worker is hired as an employee or through a contracting company

Employers often classify workers as independent contractors in order to avoid paying overtime or minimum wage. If you believe you have been misclassified, you can file a claim with the Department of Labor.

Temporary Workers

A temporary worker is an employee who works for a staffing agency or another company that hires workers for short-term assignments. Temporary workers are not covered by the FLSA and are not typically entitled to overtime pay.

However, if a temporary worker is assigned to work for the same company for more than 13 weeks, that worker is then covered by the FLSA and is eligible for overtime pay.

Volunteers

Volunteers are not considered employees under the FLSA and are not entitled to minimum wage or overtime protections. If a volunteer is paid in any way, he or she may be considered an employee and may be entitled to overtime pay.

Further Reading

In Conclusion

The exempt vs. non-exempt employees comparison is complex, but this guide offers a thorough overview of the key differences, which come down to minimum wage and overtime. If you're still not sure whether you're entitled to overtime pay, you can check with your state's labor department or an employment lawyer.

Frequently Asked Questions

Is salary exempt or non-exempt?

An exempt employee is paid a salary and not an hourly wage. Non-exempt employees are entitled to overtime pay for time worked over 40 hours in a workweek. However, there are many other factors that go into determining whether an employee is exempt or non-exempt under the FLSA.

What makes a non-exempt employee?

According to the FLSA, non-exempt employees are those who must be paid at least minimum wage and overtime for time worked over 40 hours in a workweek.

Is it better to be exempt or non-exempt?

There is no one-size-fits-all answer to this question. Depending on your job duties and employer, you may be better off as an exempt employee or a non-exempt employee. However, non-exempt employees are typically entitled to overtime pay, while exempt employees are not.

About the author

Julija A.

Julia A. is a writer at SmallBizGenius.net. With experience in both finance and marketing industries, she enjoys staying up to date with the current economic affairs and writing opinion pieces on the state of small businesses in America. As an avid reader, she spends most of her time poring over history books, fantasy novels, and old classics. Tech, finance, and marketing are her passions, and she’s a frequent contributor at various small business blogs.

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