What Is an Exempt Employee?

Unlike a non-exempt employee, an exempt employee does not enjoy legal protections under the Fair Labor Standards Act. This means that exempt employees are not entitled to receive overtime pay from their employers. The FLSA considers certain types of jobs automatically exempt. Some examples of exempt jobs are airline employees and outside sales staff.

What Is a Non-exempt Employee?

Under the FLSA, employers are required to pay non-exempt employees minimum wage as well as overtime pay for any overtime work. In general, overtime work refers to working more than 40 hours per week.

Sometimes, employers accidentally treat non-exempt employees as exempt employees. In other cases, employers fail to record and compensate non-exempt employees' overtime hours properly. Non-exempt employees who have not been compensated properly can file a claim with the Department of Labor in the United States. Such a claim is an FLSA overtime claim.

What Are the Job Duties of an Exempt Employee?

Exempt employees usually perform job duties that are considered "high-level" when it comes to the overall operations of the company. Job title doesn't impact whether an employee is considered exempt or non-exempt. Rather, it is important to pay attention to the employee's job duties to determine the exemption status.

Exempt employees usually fall under one of three categories based on the FLSA:

  • administrative
  • executive
  • professional

Employees qualify for executive exemption from FLSA if they regularly do all the following as a part of their job duties:

  • Supervises at least two other employees within the organization.
  • Has input when it comes to the job status of other employees.

Usually, employees who qualify for executive exemption are considered "the boss" or "in charge."

Professional employees have intellectual jobs that demand judgment and discretion as well as a specialized education. Professionally exempt employees must have genuine input when it comes to significant matters that have an impact on part of the organization or the entire business. Actors, writers, musicians, and journalists also qualify for executive exemption.

The best rule of thumb for identifying an administrative employee is that such employees do not directly produce the products or services sold by the company. Administrative employees don't perform clerical work.

Exempt vs. Non-exempt Employees

Employers are not required to pay overtime to certain types of employees under the Fair Labor Standards Act. These employees are usually considered exempt employees. However, this does not mean that there aren't other federal and state laws that protect exempt employees. Most states have hourly rate and wage laws, for example. These state laws usually have far more numerous and stringent requirements than the FLSA. Federal minimum wage is $7.25, and most employees must receive minimum wage pay.

For up to 40 hours of work in a week, employers need to pay non-exempt employees at least minimum wage. After 40 hours of work, employers must pay the employee 1.5 times the basic hourly wage for each additional hour of work. However, if the employee is exempt, he does not have to receive additional pay for overtime work. To be considered an exempt employee, the individual must receive a salary rather than hourly pay. As stated above, the job duties must be executive, professional, or administrative in nature.

Guidelines for Exemption From Overtime Pay Requirements

Salespeople, STEM employees, administrative employees, executive employees, and professional employees are often considered exempt. To be exempt, these employees need to fulfill the following criteria:

  • Receive a salary rather than hourly pay.
  • Earn at least $455 in a week or $23,660 in a year.
  • Are paid a salary for any week that they work.

Employees also need to pass employment tests when it comes to their job duties and responsibilities and salary to be considered an exempt employee. Researchers or individuals who are working under a governmental or educational grant are considered exceptions.

Changes to Overtime Pay Guidelines

The salary for eligibility to be exempt from overtime will eventually be increased from $455 to $913 per week. This will amount to $47,476 per year. The purpose of this increase is to account for inflation. Every three years, the salary threshold for eligibility will be reviewed and updated. This will begin January 1, 2020.

Recently, a Texas federal judge ruled to block new overtime rules temporarily. If the federal judge had not temporarily blocked the overtime rules, they would have gone into effect in December 2016.

Tax Liability Differences

Of course, employees' income levels determine which tax bracket that they fall into. Other than this, there is absolutely no difference between the way exempt and non-exempt employees are taxed by both the federal and state governments. Pay for exempt and non-exempt employees is all earned income. Therefore, the income of both exempt and non-exempt employees is taxable based on tax brackets.

Overtime Implications

Usually, exempt employees are expected to spend the amount of time needed to finish assigned tasks. It doesn't matter whether the employee takes 20 hours to complete the work in a week or 60 hours. The employee will receive the same amount of pay. Therefore, it behooves exempt employees to be as productive as possible because they will not receive more pay for putting in more than 40 hours of work in a week. Essentially, exempt employees are paid to complete the job, nothing more and nothing less.

On the other hand, non-exempt employees must receive pay for overtime if they work more than 40 hours in a work week. Therefore, the employers of non-exempt employees usually try to restrict the hours of these employees to no more than 40 hours. That way, these employers don't have to pay 1.5 times the hourly rate for all overtime hours worked.

Workers' Rights and Benefits Implications

In general, non-exempt employees enjoy far more protections under the FLSA than exempt employees. In fact, under the FLSA, exempt employees essentially enjoy no protections or rights. However, this does not mean that there aren't any other federal and state laws to protect the rights and interests of exempt employees. For example, there are federal and minimum wage laws, which apply to exempt employees and not just non-exempt employees.

Unemployment Implications

Unemployment benefits differ substantially from state to state. In most cases, both non-exempt and exempt employees can receive unemployment benefits.

So, Which Is Better?

Some employees prefer non-exempt positions because they want to be paid for every single hour that they work. On the other hand, other employees prefer exempt positions due to the greater freedom that these positions entail. If these employees use their time wisely, they may be able to get their work done in 20 hours every week and still earn just as much as they would if they worked 40 hours.

Exclusions From FLSA Coverage

Some jobs are entirely excluded from coverage based on the FLSA overtime rules. Another form of exclusion applies to jobs that are already moderated by other federal labor laws. Usually, if another federal labor law applies to a job, FLSA does not apply to said job.

Salary Level Test

Any employee who earns less than $23,600 annually or $455 weekly is non-exempt, no matter the nature of their job duties. In most cases, employees who earn more than $100,000 in a year are considered exempt. However, there are always a few exceptions.

Salary Basis Test

Usually, an employee is paid a salary if there is a guaranteed minimum amount of income the employee will earn for a work week, so long as the employee does any amount of work. If the employer calculates the base pay of an employee by dividing an annual figure by the number of paydays within the year, chances are the employee is paid a salary rather than by an hourly basis. If an employee's pay remains the same when he works fewer hours in a week than normal, it is likely that the employee receives a salary.

The salary basis test for the FLSA is only applicable to reductions in monetary amounts. If an employee receives a salary, but the base pay is reduced depending on the quantity or quality of work performed by the employee, then this may impact the ability of the employee to pass the salary basis test. There are reductions that are impermissible and permissible when it comes to salary basis pay.

The Duties Test

Even if an employee meets the salary basis test and the salary level test, an employee is only exempt if he performs job duties that are exempt. Position descriptions and job titles are largely useless when determining whether an employee performs exempt job duties. This is because an employee's job title may not match the job duties. If an employee performs the job duties of a teacher, then he is a teacher even if he has the job title of a janitor. Executive, professional, and administrative job duties are exempt.

Exempt Executive Job Duties

Job duties qualify as exempt executive duties if the employee supervises two or more employees regularly. If the employees supervised are full-time, two meet the requirement. However, if the employees are part-time, the number of part-time employees supervised must be equivalent to at least two full-time employees. The supervision must be a significant aspect of the employee's job duties. Management must be a major aspect of the position. Also, the employee must have a genuine impact on the job status of employees within the organization.

Case-by-case evaluation is required to determine whether management is a main duty of an employee's position. In general, if an employee has control over the enterprise's department or subdivision, the employee has management as a major aspect of the position.

An employee does not have to perform just executive job duties to qualify as an exempt executive employee. The employee can also perform regular job duties along with the executive job duties.

Finally, the employee needs to have an impact on personnel matters for the company to qualify for executive exemption.

Exempt Professional Job Duties

Usually, the job duties of the traditional "learned professions" are exempt under the FLSA. If work is professionally exempt, it is likely intellectual in nature. These jobs require discretion, judgment, and specialized education. In some cases, creative professional jobs are also exempt. It is usually easy to identify professionally exempt employees. However, there are some exceptions.

Exempt Administrative Job Duties

The most difficult exempt job duties to define and identify are administrative job duties. This is due to the imprecise nature of these jobs. According to the FLSA, administrative job duties are usually non-manual or performed in the office. These duties are usually related to a company's general business and management operations directly. Discretion and judgment about significant matters is a major aspect of administrative job duties. In general, administrative employees are high-level employees who perform work that is vital to the business' operations.

Rights of Exempt Employees

Under the overtime rules for the FLSA, an exempt employee is granted no rights. An employer is not restricted by the FLSA from asking exempt employees to work certain schedules or punch a clock. Employers can even ask exempt employees to work more hours to make up for absences.

Rights of Non-exempt Employees

The FLSA grants non-exempt employees the right to receive one-and-a-half of their regular rate for each hour of overtime in a work week. If a non-exempt employee works 60 hours, he will receive pay for 20 hours at the overtime rate.

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