What's the Difference between Exempt and Non-Exempt Employees?
The Fair Labor Standards Act (FLSA) requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek. However, Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees. Section 13(a)(1) and Section 13(a)(17) also exempt certain computer employees. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department’s regulations. Incorrectly classifying an employee can result in fines, penalties, and payment of back wages, so it is critically important businesses understand the rules and regulations outlined by the FLSA.
Exempt vs. non-exempt
One of the chief differences between exempt and non-exempt employees is in how they are compensated. Exempt employees are "exempt" from the FLSA regulations governing overtime pay and minimum wage. To qualify for an exemption under the FLSA, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week. Job titles do not determine exempt status. The Act does not limit either the number of hours in a day or the number of days in a week that an employer may require an employee to work, as long as the employee is at least 16 years old (state laws may differ). Similarly, the Act does not limit the number of hours of overtime that may be scheduled. However, the Act requires employers to pay covered non-exempt employees not less than one and one‑half times their regular rate of pay for all hours worked in excess of 40 in a workweek. Exempt employees may be expected to complete their assigned job duties without additional compensation even if it means showing up early or staying late in the office.
As mentioned above, the FLSA outlines exemptions for executive, administrative, professional, computer and outside sales employees. A brief description of these exemptions can be found at: http://www.dol.gov/whd/overtime/fs17a_overview.pdf.
Employees not falling under one of the exemptions must, according to federal law, receive the existing federal minimum wage rate for the first 40 hours worked in a workweek. After that, they must be paid not less than one and one‑half times their regular rate of pay for all hours worked in excess of 40 in a workweek.
Benefits of exempt vs. non-exempt
Exempt employees typically receive their full salary every pay period, regardless of the quantity or quality of work performed. Depending on their ability to get work done, they may spend less time in the office than non-exempt employees (or not work in the office at all).
Since non-exempt employees are paid for every hour they work, they know precisely how much an hour of their time is worth. They typically only work the established number of hours. In general, their responsibilities are more limited than those of exempt employees, which may result in less stress concerning business operations they aren't responsible for.
The Fair Labor Standards Act applies to virtually all businesses within the U.S. As an employer, you should be clear on the distinctions between exempt vs. non-exempt positions and establish appropriate guidelines for overtime compensation and related issues.