Exempt vs. Non-exempt employees: What’s the difference?
If you're an employer, you’ve probably heard of an exempt vs nonexempt employee before and are wondering what the difference between them is.
If you’re an employee, you’ve probably seen them in job listings or when filling out an application or even heard someone talk about them.
On the surface, it’s easy to think that there’s not much of a difference between exempt and non-exempt employees. However, as we shall find out, countless factors tell them apart.
For better comprehension, we shall start from the very beginning: The Fair Labor Standards Act, or FLSA, requires employers to categorize jobs as non-exempt or exempt. This law sets the principles for child labor and establishes record-keeping and overtime pay.
It also sets the minimum wage that an employee should get and the minimum number of hours every week that they need to work.
What is an Exempt Employee?
If you’ve been wondering what an exempt employee is, they are workers who are not entitled to overtime payment and minimum wage. This is because exempt employees do not get paid hourly but by salary. Their jobs are considered to be of an executive or professional nature. Exempt employees usually receive year-end bonuses to compensate for the type of work they do as well as for any hours spent overtime.
A worker should meet all the standards of three different tests to qualify as exempt from overtime pay and minimum wage. These tests include:
- Being paid a salary that meets the minimum threshold under the Fair Labor Standards Act. Some states have higher salary thresholds than the FLSA, so please check the laws in your state.
- Being able to exercise independent judgment in performing higher job duties and discretion.
- Being paid a salary for specific exemptions. In essence, this means that their wage won’t decrease because of the quantity and quality of the work they perform.
The workweek for full-time exempt workers is usually considered to be 40 hours. As for part-time employees, the proportion of 40 hours is equal to the appointment percentage (A full-time appointment percent is expressed as 100 while part-time is 50; making 20 hours the usual part-time workweek)
There are several groups under which a worker may be thought of as exempt: Professional, administrative, technology professional, outside sales, and executive. Exempt employees are basically those who are exempt from the Fair Labor Standards Act (FLSA) minimum wage and overtime provisions based on the duties performed and the manner of compensation.
Due to hourly pay practices, an employee appointed to a per day position with an exempt title shall be considered a non-exempt employee and be subjected to FLSA minimum wage and overtime provisions.
These exempt employees shall be paid an agreed on monthly or annual salary and they are expected to complete the duties of their position despite hours worked.
The professional exemption is for services that are creative or genuine and that need an advanced degree. The first and foremost duty must be the performance of work requiring advanced knowledge in a field of science or learning.
The administrative exemption is for office work directly related to general business administration. The executive exemption is for roles whose prime responsibility is handling a subdivision or department.
Outside sales employees must have a primary duty of obtaining contracts or orders for services. Plus, they must be regularly and customarily engaged away from their boss’ area of business.
Technology professional exemption requires a technology worker to be employed as a software engineer, computer systems analyst, computer programmer, or other similar work in the technology area. Their main responsibility must comprise of the design, documentation, testing, making, or modification of computer programs related to machine operating systems.
What is a Non-Exempt Employee?
A non-exempt employee is a worker who qualifies for overtime pay and has the right to earn a federal minimum wage. Under the FLSA, employees may be considered non-exempt if they either a) earn less than the $684 weekly minimum or b) if they have limited scope for self-supervision.
As per the FLSA, they can’t be hired in a genuine executive, professional, outside salesman, or administrative capacity. They are also expected to carry out their respective duties without interjecting their own management decisions.
This is why non-exempt workers are mostly present in jobs that involve performing repetitive tasks or physical labor such as maintenance or construction.
What is the Difference Between Exempt and Nonexempt Employees?
What is the difference between exempt and nonexempt employees? The significant variation between the two workers is nonexempt employees are entitled to a federal minimum wage of nothing less than $7.50 per hour and overtime pay at a rate of approximately one and a half times their usual salary. Exempt employees, on the other hand, don’t receive overtime pay. They can’t collect overtime even if their workweeks exceed 40 hours.
Another notable difference between exempt versus nonexempt employees is non-exempt workers are usually paid wages per hour, unlike exempt employees who typically earn salaries that are higher than what minimum wage earners receive.
Exempt employees earn more than $35,568 per year or $684 per week (according to the 2020 minimum salary threshold of the FLSA) while non-exempt workers earn below the stated figures.
If you’ve been trying to understand what the difference between exempt and nonexempt employees is, you should have a better picture now.
Benefits for Exempt vs. Non-Exempt Employees
An exempt vs non-exempt employee enjoys benefits on varying levels. Either way, each employee is fairly compensated for the role they play.
One of the advantages that exempt workers have is that they are compensated for the tasks they finish, not the duration it takes to finish them. Because of this, they’re compensated with a salary and not hourly wages.
Also, despite the number of hours employees are working, they make a constant amount every pay period so exempt employees don’t have to worry about how a sudden drop in hours worked will affect their paychecks.
They also have a more flexible work environment than their non-exempt counterparts. Ordinarily, employers are more interested that these employees finish their tasks, rather than when they complete these tasks. Employers will be more flexible with these employees and allow them to work remotely, extend their lunch breaks, or report to work later than normal.
Non-exempt workers receive compensation for the time they work, not the jobs they finish. This means that if they work more than 40 hours every week, they earn some additional money.
Employees who have mandatory overtime or volunteer for overtime can benefit significantly from their position as a non-exempt employee can earn plenty of money in overtime pay.
Additionally, non-exempt employees can rest easy knowing that they are reimbursed for each hour they work. Unlike salaried workers, who may discover they work plenty of hours that they end up making an extraordinarily low amount every hour when they calculate. Non-exempt workers know the exact value of an hour of their time.
Pros and Cons of Exempt Employees
Hiring an exempt worker is advantageous for some employers and a total headache for others- mostly because they don’t do their research before bringing these workers on board.
If it’s your first time employing exempt workers, here are some of their benefits and drawbacks to help you make the right choice:
- You can rest easy knowing they’ve got more knowledge. Exempt employees generally bring more to the table hence are a necessary asset to your establishment. Their level of expertise may focus on a specific area or various fields.
- You can give them more tasks. Exempt workers are naturally wired to handle more within a short time efficiently. You can depend on them to efficiently take your organization through crunch time ahead of huge events like seasonal deadlines and business mergers.
- They don’t need supervision. Exempt employees specialize in their work. Therefore, they can pull through without you having to check up on them or regularly give them instructions.
- You don’t have to pay them overtime. When you decide to employ exempt workers, you won’t pay them overtime regardless of the number of hours they work every week. Their salaries don’t change based on the amount of time they work.
- You can’t subtract pay for hours they haven’t worked. Assuming you work out your exempt workers’ salaries based on the presumption of a 40-hour workweek. Even if they work less than 40 hours each workweek regularly, you can’t subtract from their pay for hours they haven’t worked.
- Chances are you’ll have to pay them more. Though you won’t pay them overtime, they’re likely more expensive than nonexempt workers. This is because they’re more experienced and can efficiently handle higher-level tasks, which often require a higher pay rate.
Pros and Cons of Nonexempt Employees
Despite their less-preferred job category by many, non-exempt employees can be a miracle or nightmare to your company depending on how you treat them and how faithful you are when it comes to paying them.
Looking to hire them but you don’t know what to expect from them? Here are some perks and disadvantages to give you an idea:
- They are submissive. Nonexempt workers know their position in their workplace and are ready to deliver. They’re trained to carry out more work and follow instructions.
- Maximum flexibility. Hiring a nonexempt worker provides a layer of flexibility for you since there’s no minimum requirement for the number of hours they should work each week. You can pay them an hourly rate and schedule them depending on your organization’s needs.
- You don’t need as much money to employ and sustain them. Nonexempt workers work under specific terms and have an hourly and yearly wage regulated by the FLSA. All you have to do is find out the regulations and use them to pay your employee fairly.
- You’ll have to pay them overtime when they work 40 hours a week. You’ll need to accurately track and monitor employee hours with reliable software such as ClockInEasy to ensure that they are accurately reimbursed for their time.
- In case of a workload increase, such as an unexpected influx of customers or during holiday sale durations, it could be impossible to keep salary costs in check. If your non-exempt workers work longer than their FLSA-defined 40 hours a week, you’ll need to pay them overtime of at least one and a half times their usual rate.
When to Hire Exempt or Nonexempt Employees
Whenever you create job descriptions and titles for your workers, you should consider which group- exempt vs non-exempt employee- will benefit your establishment more.
If you’ve got seasonal, hourly, or temporary job posts, then nonexempt workers are the perfect fit.
For long-term posts with administrative, expert, or executive responsibilities, exempt employees are more suitable. Point to note: Though it’s easy to employ an exempt worker due to their experience, it helps to do some research on them first. Interview if necessary, or ask around so you’re 100% sure of the choice you’re making.
To avoid confusion or misunderstanding, it’s best to differentiate the above roles depending on the actual tasks, then hold your employees responsible for the set guidelines.
Classifying a worker incorrectly can attract payment of back wages, fines, and penalties. Strive to abide by these best practices to save yourself from the costly results of improper categorization:
- Review and understand the regulations and laws set by the FLSA concerning non-exempt vs. exempt classifications.
- Focus on your state. Find out if your state has its regulations and if yes, stick to those instead.
- Review, update and use job descriptions to see to it that employees who carry out the same duties are classified consistently.
- Never leave best practices to chance. Try to avoid missing key actions by having a procedure in place for grouping your workers correctly. If ever you need assistance, never hesitate to consult an expert.
The employment industry is rapidly evolving. Gone are the days when employees worked for a specified period. This calls for you, the employer, to move with the times. Embrace the exempt vs non-exempt employee categorization and choose according to your job requirements.
As we’ve already seen, there are so many differences between exempt and non-exempt employees and each type of worker grows an organization in a specific kind of way. It’s up to you to know what you want and what you’re after so your decision-making process is smooth and effective.
If you choose to hire an exempt worker, please know that they can handle tasks independently and should you choose to undermine their ability, they can use the FLSA rule against you in court.
When it comes to non-exempt workers, your relationship with them will be stress-free only if you pay them fairly based on the level of work they put in and how long they’ve worked.
We believe you’ve found this article helpful and are ready to employ the right type of worker. All the best every step of the way!