Updated July 21, 2020: 

What Is Non-Exempt Salary?

Non-exempt salary is a fixed payment protected by FLSA, or Fair Labor Standards Act, which is a regulation that governs working hours, minimum wage, and overtime compensation. In the workplace, you have two types of employees – non-exempt and exempt. Non-exempt employees are awarded overtime pay, although, workers who are exempt are not.

What Determines Exempt or Non-Exempt Status?

The majority of employees who are covered by the FLSA are considered non-exempt. In most cases, three factors control how an employee is classified:

  • Type of work
  • Amount of wages
  • Manner of pay (hourly or salary basis)

What Does Salary Basis Mean?

A salaried employee, as opposed to an hourly worker, is not paid for the actual hours he or she works during any given week. A job offered on an hourly basis would indicate how much the employee will receive for each hour worked, whereas, on a salary basis, payment gets rendered according to an employer's expectation of how many hours the employee will work. As salaried, a worker relies on receiving, at the least, guaranteed minimum wages any week that he or she does any amount of work.

Does Minimum Wage Only Apply to Hourly Pay?

Under the FLSA regulations, there is a minimum threshold for weekly salary wages. As an exempt salaried employee, he or she must make at least $913 weekly. Some states may have a higher starting pay per week to qualify a person as an exempt salaried employee, but it cannot be less than the federal minimum which is $47,476 per year.

There Are Exclusions From FLSA Coverage

The FLSA overtime rules are not applicable to all jobs. Some are completely unaffected by them. Many agricultural workers and movie theater employees do not get held to the statute at all. If an occupation is controlled by another federal labor law, then it too is not subject to the overtime guidelines of FLSA.

What Is Significant About Salaried Exempt Workers vs. Non-Exempt?

When an employee paid on a salary basis is also an exempt worker, he or she receives at the very least the minimum weekly wage but is not subject to the overtime rules of the FLSA. To be exempt, the employee must meet certain criteria which include the type of responsibilities and duties he or she does.

A few jobs get considered as exempt by definition. An example of this is with sales personnel. An outside salesperson has exempt status while an inside salesperson is non-exempt.

In most cases, with few exceptions, if an employee works in the capacity of either an administrative, professional, or executive role, he or she is exempt. Since individuals in these occupations must function a majority of the time independently and perform high-level work, which contributes to the management of the company, they get exempted from the FLSA rules. Without having the governance of the Fair Labor Standards Act, exempt salaried workers do not receive overtime compensation even if fulfilling their duties includes working more than 40 hours during a workweek.

Non-exempt salaried employees receive fixed wages for working a determined number of hours weekly. However, should they exceed those hours in any given week, they will be paid for the extra hours in overtime pay. An hourly rate is calculated based on the salary amount. For example, a salaried employee making $59,000 per year makes the equivalent of $28.36 per hour in a 40-hour workweek. Just like an hourly worker, the overtime rate would be one and one-half times the regular hourly rate, or time and a half - equaling to $42.54 per hour exceeding 40 hours during the workweek.

Many Employers Have Incorrect Thinking About Non-exempt Salary

It is a common misconception of companies to believe that by having salaried employees, they will not have to bother with tracking time by not having them work over 40 hours. Many employers choose to pay employees on a salary basis because it is easier to estimate what the payroll costs will be from month to month. In their eyes, they see less hassle and less paperwork because they will pay out a set amount on a set pay cycle. Most employees tend to enjoy the stability the salaried wages provide. Additionally, the worker typically has no problem with the arrangement because they are not required to do overtime.

Unfortunately, companies run into problems legally with their non-exempt salaried employees by failing to keep track of hours. While it is true that an employer can pay workers how they choose, FLSA still requires that the company show that employees are at least receiving the minimum wages according to the regulations. Also, if an employee is non-exempt, he or she must still receive proper overtime pay for the hours worked over 40 hours during a workweek.

An Employer's Responsibilities for Non-exempt Salaried Employees May Be Pitfalls

There are a few obligations a company must consider to be compliant with the regulations for tracking its non-exempt workers' hours:

  • An employer must accurately determine what the non-exempt salaried employee's actual pay rate is per hour so that the company can calculate and track overtime hours appropriately. If an employer pays on a salary per year basis, which is standard for most businesses, the employer can get the hourly rate by reverse engineering from the yearly amount.
  • An employer also must be sure that a standard calculation is in place that applies to all salaried employees and everyone that deals with payroll at the organization should be aware of it.
  • Employers have to deal with and track absences as well. It would be inclusive of deductions to the weekly salary amount.

Even with deductions for absences, the employer is still obligated to pay overtime when necessary. So, some companies view these administrative responsibilities as a pitfall and begin to question its decision to make some non-exempt employees salaried in the first place.

What Duties Qualify as Exempt?

The descriptions and job titles of an employee are not that helpful and do not have substantial influence when it comes to determining whether to classify an employee as exempt or non-exempt. An example of this would be the fact that a secretary would still do the work of a secretary if he or she was called an administrative assistant. What is of the most significance when determining status is the consideration and work responsibilities the employee performs.

Job duties that can receive payment as exempt come under three categorizations:

  • Professional
  • Administrative
  • Executive

Professional Job Duties

Work performed that has a professional exemption must:

  • involve the employee exercising his or her judgment and discretion
  • require advanced education and specialized training
  • mainly be intellectual in function

Traditional learned professions typically are jobs doing exempt work. Some of these professions include:

  • Teachers
  • Accountants (excludes bookkeepers)
  • Engineers with engineering degrees or an equivalent
  • Lawyers
  • Doctors
  • Registered nurses (not LPNs)
  • Clergy
  • Dentists
  • Actuaries
  • Pharmacists
  • Architects
  • Scientists (not technicians)
  • Other employees who perform work that has always had a relation to professions that require advanced knowledge

Employees could be considered for professional exemption if they have attained education in industries that require more academic training than mechanical arts or skilled trades. The training will usually go beyond that of college and come with an advanced degree. However, if an employee has received an equivalent level of education in an alternative way and does work that is similar to the work done by employees with an advanced degree, the worker could be considered exempt.

Employees can perform other kinds of work that is creative professional work, and it could be exempt. Those jobs would include:

  • Musicians
  • Cartoonists
  • Some journalists
  • Composers
  • Actors

These employees do work that requires originality, talent, imagination, or invention and they contribute a unique analysis or interpretation.

It is not difficult to identify creative professional workers. For the most part, classifying them with the professional exemption is straightforward and uncontroversial. If in doubt and an employer has some difficulty determining, an analysis of the work the employee does may be required.

Administrative Job Duties

Administrative duties probably have the most elusive and inexact definitions out of the three categories to base a determination. There is a regulatory definition, however, and it states administrative duties are exempt when they:

  • Connect directly to the general business operations, employer's customers, or management
  • Include the use of discretion and independent judgment regarding important matters
  • Are work responsibilities accomplished in an office or are not manual

When employees are high-level with the primary job of making sure the business continues to operate, they are administratively exempt. A valuable rule of thumb would be for an employer to distinguish them from being operational or production. In other words, administrative employees are not responsible for making any product the company may sell. They are viewed as "staff" and not as "line" workers because they give support to the production and operational team.

Administrative duties may involve some of the following:

  • Finance and payroll
  • Internet, database, and network administration, or some other computer-related jobs
  • Advertising and marketing
  • Human resources
  • Tax and accounting
  • Regulatory and legal compliance
  • Investment, government, public, or shareholder relations
  • Records maintenance

Not all administrative work qualifies as exempt work. Even if the job of an employee is a financial asset to the employer, it does not automatically make the worker exempt. Clerical workers are an example of when the office or nonmanual duties of an employee are not exempt. Administrative work is exempt when the employee has to exercise judgment and possesses the authority to make intelligent decisions that will significantly affect either part or the whole business when it comes to particular situations.

The employer can ask a few qualifying questions to aid in making their determination:

  • Does the employee have the power to commit the company to financial obligations that will have a substantial impact on business?
  • Does the worker not need approval beforehand to stray away from company policy?
  • Do the assignments the employee must handle involve the overall function of the business?
  • Can the worker use his or her authority to make a company policy?

If an employee works on a help desk, answers telephones, files papers, fill out forms or routinely prepares reports, it is unlikely the work is exempt. Although the duties are administrative, they are not qualified for exemption because they are not high-level.

It is uncommon for the work of secretaries to be exempt, for example. However, the secretary of the CEO would undoubtedly be high-level and would certainly be an administratively exempt employee. Employers may provide an employee with an attractive title for his or her position, like "administrative assistant." Then when it comes time to evaluate the work that the worker is required to perform, it is seen that his or her obligations are no more than non-exempt clerical duties.

Executive Job Duties

Executive work responsibilities are considered exempt if the employee:

  • Regularly supervises two or more other workers
  • Has a primary function that is management
  • Gives input that is given considerable weight about assignments, promotions, firing, or hiring

It is not necessary for an employee to have the final say when he or she gives input into staffing within the company but his or her suggestions must have a genuine influence that is highly regarded and taken seriously by higher management. Having input must be a part of the employee's job regularly for it be deemed exempt.

To determine if an employee's primary duty is managerial, an employer should look for whether the worker runs a full shift or an entire department. In many cases, to make a determination, a case-by-case evaluation may be required.

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