Small Business Tips

What are Exempt vs. Non-Exempt Employees?

Manasa Reddigari

Staffing your small business doesn't end with hiring and training employees. Per federal regulations on overtime pay, employees must also be classified as exempt or non-exempt. Unless you want to face a potential lawsuit or stiff fines, you should learn the differences between exempt vs. non-exempt employees.

Exempt vs. non-exempt employees: Why is exemption status important?

The Fair Labor Standards Act (FLSA) establishes a basic set of rules that employers must follow to ensure the fair treatment of employees. These rules range from minimum wage and overtime pay standards to the employment of minors.

Certain professions are completely excluded from the FLSA umbrella of protections. For example, certain agricultural workers and employees of movie theaters are not covered by the FLSA. But non-covered professions can also include those professions governed by other worker laws. For example, truck drivers are covered under the Motor Carriers Act, so they are not also covered under the FLSA.

The FLSA protects the majority of employees in the U.S. Additionally, FLSA-covered employees are further classified as either exempt or non-exempt employee. The exemption status of an employee determines whether he or she is entitled to overtime pay or not.

For this reason, it is important to assess the appropriate classification for each hire. This will help set appropriate expectations about wages and expected working hours for your employees. It will also prepare you legally and financially for the hire.

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What are exempt employees?

Exempt employees are exempt from the overtime pay standards of the FLSA. This means that exempt employees are not entitled to receive overtime pay from their employer. Examples of exempt employees include truck drivers, airline employees and outside sales employees. But it can also include a host of white-collar professionals, even those in the computing sector.

According to the FLSA, exempt employees typically meet all of the following criteria:

  • They are paid on a salary basis.
  • Earn at least $23,600 per year (or $455 per week).
  • They perform exempt job duties. These are considered high-level duties in the executive, administrative or professional categories.

It can seem like an advantage for employers to classify workers as exempt. After all, you don't need to track or pay the exempt employee for the time he or she works over the standard 40 hours per week. But the disadvantage of this classification is that the burden of proof lies with you the employer to prove that an employee is actually exempt.

What are non-exempt employees?

Businesses must track and compensate non-exempt employees for time they work over 40 hours per week. You must pay an exempt worker "time and a half" for overtime.

You can file an overtime claim with the U.S. Department of Labor if you inaccurately classified or compensated a non-exempt employee.

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