Exempt and Non-Exempt statuses are legal classifications that companies use to distinguish between different types of employees. In brief, exempt employees are ineligible for overtime and non-exempt employees are eligible for overtime. Below we explain the major differences between the two classes of employees.
Which Labor Law Created Exempt Employees?
The Fair Labor Standards Act (FLSA) of 1938 was established by the Department of Labor (DOL) to set standards for minimum wage and overtime pay. The current FLSA overtime standard for overtime pay applies to non-exempt employees who work over 40 hours in one week. The established rate of pay is one and a half times their normal wage.
Which Employees are Normally Exempt?
Non-exempt employees are generally white collar professionals, such as executive, administrative and professional employees. An executive employee is anyone who supervises two or more employees and can hire, fire or assign work tasks. Administrative exemptions are operational staff, such as HR, accounting, marketing and advertising employees. Professionals are employees who engage in intense intellectual work, such as certain art, creative and academic professions. This can include doctors, lawyers, engineers and computer professionals.
Related: What do HR Managers Need to Know About Overtime Laws?
There are also additional classes of low paying workers who are also exempt from overtime pay. This includes airline, seamen, movie theater and recreational park employees. Keep in mind that employers must be able to defend their exemption decisions with solid logic and legal documentation. Failure to do so can result in costly misclassification lawsuits and settlements.
What are the Three FLSA Exemption Tests?
Exempt employees are not only determined by job classification, but also by established FLSA test guidelines. First, the salary level of exempt employees must be at least $455 per week and $23,600 per year. Next, the salary basis test means that employees must receive a minimum salary regardless how much work they perform or how many hours they work. For example, salespeople are often given a basic salary with sales commissions as further compensation. The third test is the specific job classification mentioned above, which can only be met after the salary level and salary basis requirements are satisfied.
What are the Technical Differences?
Both types of employees are identically taxed and receive similar unemployment benefits. However, non-exempt employees typically receive better protection from state and federal labor laws. For example, the Dept. of Labor’s Federal Minimum Wage and Agricultural Employment laws target non-exempt employees. However, certain laws apply to both types of employees, such as OSHA laws concerning a safe workplace and the Dept. of Labor’s Family and Medical Leave Act (FMLA). Another major difference is that the FLSA has specific record keeping requirements for non-exempt employees. That is, employers are required to maintain detailed documentation of hours worked for non-exempt employees. On the other hand, exempt employees are not required to track their hours at all.
To summarize, there are fundamental differences between being classified as an Exempt or Non-Exempt employee. Certain employment categories and specific job types are considered exempt. In addition to this, the employee must meet the minimum salary requirements. While all Exempt and Non-Exempt employees receive basic protection from state and federal laws, non-exempt employees enjoy better legal protection from the government.
