Non Exempt Employees

Here is everything you need to know about non-exempt employees – from pay issues to the types of duties and responsibilities related to each.

What’s the Difference between an Exempt and a Non-Exempt Employee?

Under the Fair Labor Standards Act (FLSA), there are two types of employees – exempt and non-exempt. The most significant difference between the two is payment for overtime worked over a period of time. Exempt employees are just that – exempt from overtime pay. Non-exempt employees are eligible to receive overtime pay, which differs depending upon state law. Employees are classified as either exempt or non-exempt pursuant to the type of work they perform and the salary (or wages) they earn.

There are several other classifications of employees in addition to exempt and non-exempt including trainees, interns, temporary workers, and volunteers. Each may have their own pay requirements under the FLSA or state law.

Tax Liability Differences

There is absolutely no difference in how exempt and non-exempt employees are taxed aside from the various tax brackets into which all employees fall within. All compensation is considered to be “earned income” and is therefore taxable to whatever tax bracket their compensation falls in. It does not matter if that income is earned on an hourly basis or a salaried basis.

Exclusion from FLSA Coverage

The majority of jobs in the United States fall under the FLSA’s purview, although there are a few exceptions including movie theater employees, agricultural workers and others who are excluded from FLSA overtime rules. However, as a general rule, any job governed by a different federal labor law would likely be excluded from FLSA requirements. For example, most railroad worker employees are governed under the Railway Labor Act. Similarly, truck drivers are generally governed under the Motor Carriers Act instead of the FLSA.

Exempt Employees Overview

As a general rule, exempt employees are not entitled to overtime pay under the FLSA. Non-exempt employees are entitled to overtime under the Act. The FLSA mandates that employers pay at least the minimum wage (the higher wage between the state and the federal minimum) for up to 40 hours per week. After 40 hours per week, non-exempt employees must be paid overtime for any additional time they work unless they fall under an exception to the rule such as those who work in specific service or retail organizations.

Certain jobs are specifically excluded from the FLSA’s overtime requirements such as truck drivers, agricultural workers, and other professions which are governed by other non-FLSA laws. However, for most jobs, an employee is considered to be exempt if he or she meets these three tests, 1) they are paid at least $23,600 per year (which is the equivalent of $455 per week), 2) they are paid on a salaried basis (versus an hourly basis), and 3) they perform non-exempt duties. The FLSA’s salaried requirement does not apply to specific professions such as school teachers or physicians who may be paid on an hourly basis.

Classifying an employee as exempt has distinct advantages including not having to track the hours they work or paying them overtime. Exempt employees are paid their same salary regardless of the hours they work during week.

Many states have their own wage and hour requirements in addition to the FLSA rules. Employers must understand and abide by both in order to remain compliant and avoid fines, lawsuits, and investigations. In order to be considered exempt, an employee must perform certain duties which the FLSA classifies as either professional, executive, or administrative – and meet the FLSA’s specific salary test.

Salary Basis Test

An employee will generally be considered to be paid on salaried basis if he or she receives a guaranteed minimum amount of pay for the week in which any amount of work is performed. An employee who earns $48,000 per year would be paid $4,000 per month – which is 48 divided by 12. It’s important to remember that an exempt employee must be paid the same amount every pay period, regardless of whether that amount is expressed in an hourly figure as the FLSA salaried test only applies to reductions in monetary amounts in pay.

Long absences from work would not be considered a reduction in pay if the employee did not work any hours in a given week. The employee would have earned their guaranteed salary had they worked. In contrast, paying an exempt employee more than their guaranteed minimum salary would also not affect FLSA rules as it is not considered a reduction in pay.

The bottom line is the exempt employees must be paid a guaranteed minimum amount every week in which they work any hours. That pay can generally not be reduced in any way. So, if a salaried employee at a manufacturing plant does not have any work to do on one day, they must still be paid a salary.

Exceptions can be made for disciplinary suspensions, full day increments (in certain situations), under a bona fide sick leave or Family and Medical Leave Act (FMLA) situation, or things of that nature. However, any permissible deductions cannot affect the employee’s exempt salary status.

Employers should be very careful when making any impermissible deductions from an exempt employees pay, and the Department of Labor could very well investigate and claim that the employee may be non-exempt based on the employer’s deductions. If that happens, the employee may sue for unpaid overtime based on the misclassification.

Duties Test

Exempt employees must meet both a salary test and a duties test in order to maintain their exemption. In most cases, these FLSA exemptions apply to employees who routinely perform managerial, higher level work. The FLSA defines those duties for many types of exempt employees.

Types of Exempt Employees

The FLSA recognizes these three main categories of “exempt” employees: Professional, Executive, and Administrative. The FLSA has made these categories of employees purposefully broad in order to encompass various types of jobs and the tasks performed so that the title alone does not automatically determine whether the job is considered exempt or non-exempt.

Guidelines for Exemption from Overtime Pay Requirements

Professional, executive, and administrative employees – as well as sales people and those who work in fields of science, technology, engineering, and math – can be classified as exempt, meaning that they do not have to be paid overtime under the FLSA. However, this can only occur if they are paid on salaried (not hourly) basis and earn at least $455 per week – regardless of the hours they work in a week.

  • Executive: Executive employees are exempt under the FLSA if they regularly perform supervisory duties for two or more employees, whose primary duties include managerial tasks, and they have genuine input into assigning tasks, hiring, and firing other employees.
  • Professional: Professional employees generally perform intellectual positions which require specialized education such as lawyers, physicians, architects, nurses, and teachers. These positions routinely require the use of judgment and discretion. However, this exemption does not include those who work in mechanical arts or skilled trades which do not require a college or advanced degree. It does generally include creative professionals such as actors, musicians, journalists, and writers whose positions require a unique talent, imagination or specific contribution to the employer’s business.
  • Administrative: Administrative employees generally perform duties which support the business itself such as accounting employees, public relations staff, and human resource personnel. In most cases, these employees are not responsible for producing what the company sells. However, their contributions are considered to be on a higher level than an average clerical worker. Exempt administrative employees generally perform non-manual work which is directly related to a company’s general business operations or the management of the company. Their primary work component involves exercising independent judgment and discretion concerning significant company matters.

It’s important to keep in mind that an exempt employee can perform menial, or regular, tasks and still maintain their exemption. An example would be the manager of a restaurant who may have to wait tables during busy periods. However, he or she is still in charge and would maintain their exemption despite having to perform the occasional “non-exempt” tasks.

Overtime Implications

As stated above, exempt employees are paid their salary regardless of the hours they work in a given week. They are expected to devote whatever time is necessary in order to complete their assigned tasks, which in many situations can be between 35 to 55 hours per week. They are not paid for time and a half for hours worked over 40; only whatever is time is needed to get the job done. Conversely, non-exempt employees must be paid overtime to comply with the FLSA. Employers should be mindful of monitoring non-exempt employees’ hours as overtime pay can quickly add up.

Exceptions to Overtime Requirements

There are many exceptions to the FLSA’s overtime requirement. Some of these include researchers who work under a governmental or educational grant.

Examples of Exceptions to Overtime Pay

  • Alice is an exempt employee and is not entitled to overtime under the FLSA.
  • Brian is a non-exempt employee and is entitled to overtime pay under the FLSA.
  • Claire earns $400 per week, so she is entitled to overtime as she does not meet the salary threshold of the FLSA test.
  • David received a promotion as a manager and salary increase to over $455 per week, so he is likely exempt.

Non-Exempt Employees Overview

Non-exempt employees are entitled to overtime pay under the FLSA. Employers must pay non-exempt employees time and one half under the FLSA for any hours worked over 40 in a workweek (but be careful to adhere to state laws which may provide for more). Employees must be paid the higher of the federal minimum wage (which is $7.25 as of 2017) or the state minimum wage – many of which are higher than the federal rate.

Employers should always be careful to not mistakenly treat exempt employees as non-exempt employees as the Department of Labor often investigates claims of this nature. If it finds that an employer has misclassified an employee as exempt simply to avoid paying overtime, it may look into all of the employer’s classifications. If it determines that some are incorrect, misclassified employees may sue for unpaid overtime which can be costly to employers.

Changes to Overtime Pay Since 2016

The Department of Labor has been eager to update some of the FLSA’s outdated salary requirements and attempted to do so in 2016. It proposed an increase in the salary test from $455 per week to $913 per week ($47,476 per year) and then the possibility of sequential updates every three years beginning in 2020 based on wage growth in certain US job sectors.

However, a federal judge in Texas blocked the proposed updates temporarily, so the existing rules are still the law. The Department of Labor has appealed this decision and publicly commented that it disagrees with the court’s holding. While many members of Congress, employee advocacy groups, and individuals also disagree with the court’s ruling, it still remains in effect.

Other Overtime Pay Issues

Employers often mistakenly believe that providing employees with “comp” time instead of paying overtime (for example, take a half day on Friday and make up the time next week) is legal. It is not.

Employees under the age of 18 are often protected under special federal and state provisions regarding when and how they can work. Employers need to pay special attention to federal and state laws concerning meals, breaks, and time spent changing into work gear as these have been the subject of many class action lawsuits.

Wage and Hour Law Enforcement

The Department of Labor interprets and enforces the FLSA, but many states have similar agencies to enforce and investigate state employment law matters.

Unemployment Implications

Unemployment benefits vary from state to state. However, generally speaking, both exempt and nonexempt employees can collect unemployment benefits.

Rights of Exempt Employees

Exempt employees are entitled to their full salary, with a few exceptions, for any hours worked during the workweek.

The FLSA doesn’t specifically prohibit employers from requiring exempt employees to work certain hours, punch a time clock, or make up time due to absences. However, employers should consult with the Human Resources department or an employment law lawyer before “docking” an exempt employee and make sure their employee handbook specifies what is required and that it is applied fairly and evenly to all employees.

Rights of Non-exempt Employees

Nonexempt employees are entitled to time and one-half their "regular rate" of pay under the FLSA for each hour they actually work over the applicable FLSA overtime threshold in a work period.

Which is Better: Exempt and Nonexempt Status?

There are pros and cons to being an exempt employee and a non-exempt employee. Overtime pay, status, work-life balance, and guaranteed salary are the main considerations – as well as the type of job an employee prefers to do. Remember that some employees do not want managerial responsibilities, while others would prefer them in order to earn more income.

If you need help with an issue related to non-exempt employee status, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures and Airbnb.