The Fair Labor Standards Act (FLSA) requires all employers to identify their jobs as either “exempt” or “non-exempt”. In order to remain in compliance with FLSA rules and regulations, it is important to understand the differences between these two types of workers and the jobs they perform.
Exempt vs Non-Exempt Employee: What’s the difference?
The biggest difference between exempt and non-exempt employees is overtime pay, according to Monster. While non-exempt employees are entitled to overtime pay, exempt employees are not.
According to FLSA, exempt employees are excluded from certain rights such as overtime pay. This typically includes executive, professional, supervisory or outside sales positions. In addition to federal mandatory overtime laws, many states establish their own laws to address things like salary, overtime and minimum wage. To be legally compliant, employers must be sure to follow both federal and state employment laws.
At a minimum, FLSA requires employers to pay a minimum wage for the first 40 hours in a work-week. Unless the employee falls into an exception category, employers must also pay overtime for any excess hours worked.
Although federal law does not dictate that employers must pay these workers for hours worked overtime, it is at their discretion whether or not to do so. Some employers may offer additional perks in lieu of providing overtime pay.
In order for an employee to be considered exempt, they must be paid a salary rather than an hourly wage. They must also perform administrative, executive or professional duties.
If that was not confusing enough, there are a number of additional state, federal and FLSA laws pertaining to other types of workers. Examples include independent contractors, interns, temporary contractors, workers in training, volunteers, and foreign workers. It is imperative that employers follow all applicable laws to remain in legal compliance.
As the term implies, non-exempt employees are not exempt from FLSA requirements. This means that employers must pay every employee who falls into this category at least the federal minimum wage for each hour that they work ($7.25 as of 2017). This distinction is very important for employee time recording purposes. Nonexempt employees must receive overtime pay for any hours worked beyond their normal 40-hour work week. Overtime pay must be at least one-and-a-half times their rate of hourly pay.
What are the various types of exempt employees?
There are 3 different types of exempt employees. The FLSA establishes three main categories of exempt workers:
Each of these categories is intentionally broad so they can cover various different types of jobs. Keep in mind that it is the duties performed on the job, rather than the job title, that determines the position’s FLSA status. Unlike nonexempt employees, exempt employees are not entitled to additional pay for hours worked outside of their standard work-week.
Guidelines for Determining Exemption from Overtime Pay
In addition to administrative, executive and professional employees, sales people and STEM employees may also be classified as exempt. These employees are not eligible to receive overtime pay so long as they meet the following criteria:
– The employee earns a minimum of $455 per week.
– The employee is paid a salary, rather than an hour wage.
– The employee receives the same salary for any week that they work.
In addition to these basic guidelines, exempt positions must also be able to meet certain employment tests regarding job duties, salary and responsibilities.
Exceptions to Overtime Requirements
Generally, any non-exempt employee earning less than $455 a week ($23,660 a year) is guaranteed overtime pay. There are some exceptions such as researchers or individuals working under a governmental or educational grant.
Here are some examples of how to apply the overtime guidelines:
– Jane is an exempt employee which makes her ineligible for overtime pay.
– James earns $400. This means that he is guaranteed overtime pay for any additional hours he works at the office.
– Allison is a non-exempt employee. She works as many overtime hours as she can because she earns a rate of one and a half times her hour wage.
– Following a promotion and pay increase, Robert is no longer a non-exempt employee. This means that he is now unable to earn overtime pay.
– When she was presented with two job offers, Jessica chose the one with the lower salary because she would be eligible for overtime pay.
Proposed Modifications to Overtime Pay
Recently, a number of changes have been proposed to overtime laws. In December 2016, a new law was set to take effect that would increase the salary eligibility for overtime. The proposed change would have increased the threshold from $455 to $913 per week.
Additionally, it was proposed that this salary threshold would be modified every 3 years beginning January 1, 2020. This number would be continually adjusted to account for wage growth.
Although these new policies were expected to take effect on December 1, 2016, a federal judge in Texas temporarily blocked the new rules from taking effect. As long as the ruling stays in place, current overtime policies will remain in effect.
The Department of Labor has been working to appeal the injunction and have the appeal expedited. They have released a statement that they strongly disagree with the judge’s decision and maintain the legality of their Overtime Final Rule. Since the new regulations have been blocked, dozens of Congress members have urged the Court to reconsider the injunction.
Understanding the difference between exempt and nonexempt employees is essential to developing timekeeping best practices for your company. Not only that, but it can also help your business remain in compliance with state and federal laws.