Exempt vs. Non-Exempt Employees | Complete 2022 Guide

Employee classification can be confusing. How can you tell if your white-collar job qualifies as an exempt or non-exempt position? Is it by job description, working clothes, or pay? Which one has the most benefits?

Telling the difference between an exempt and a non-exempt employee requires a bit of knowledge. It is essential you know the difference to know if your company has misclassified you.

The key difference is that one type gets compensated for overtime hours and the other doesn’t. But there are also other critical features for each type. Knowing these features can help you make the right choice between the two.

In this piece, we will:

• Discuss these two types of employees
• Highlight their key differences
• Tell you which one is best for you

We’ll also include other specifics such as types of exempt employees and the differences between salary and wages.

Differences Between An Exempt And A Non-Exempt Employee

You’ve probably seen the two terms—exempt and non-exempt—but do you know what employees are being ‘exempted’ from? 

Well, it has to do with the FLSA (The Fair Labor Standards Act). FLSA rules and regulations apply to employees that fall under the non-exempt category.

The FLSA is a federal law that specifies the minimum wage and overtime pay requirements for workers. It also establishes equal pay, recording keeping, and child labor standards. The act requires employers to group their employees into either exempt or non-exempt employees. Misclassification of employees attracts costly penalties.

— Exempt Employees

FLSA rules and regulations do not cover exempt employees. This means they are excluded from overtime rules, minimum wage, and other protections and rights applicable to non-exempt workers.

They are usually full-time employees who receive a salary instead of hourly wages. Exempt jobs are typically professional, executive, supervisory, and outside sales positions.

— Non-Exempt Employees

Non-exempt employees fall under FLSA requirements, rules, and regulations. Workers in the category must earn hourly wages equal to or more than the federal wage minimum. 

They are also paid overtime for the number of hours worked beyond the 40-hour per workweek. The overtime pay must not be less than one-and-a-half times their hourly rate. And they must be paid for any extra hours beyond 40 hours per workweek.

Non-exempt workers also benefit from the standards and rules set by the FLSA regarding equal pay.

Types Of Exempt Employees

There are five types of exempt employees based on the FLSA established guidelines for exemption from overtime pay requirements. These are:

• Executive employees
• Professional employees
• Administrative employees
• Computer employees
• Outside sales employees

Employees performing these types of jobs get non-exempt employment status if they:

• Are paid a salary instead of hourly wages
• Earn a minimum of $684 per week or $35,568 annually
• Receive a salary for any week they work

There is also a duties test set by the U.S. Department of Labor (DOL) to help human resource managers determine the eligibility for any job position for the exempt status.

• Executive Exemption: Employees in the category are responsible for managing the business or a subdivision/department in a company. They must be responsible for directing the work of no less than two employees. They also have the executive power to hire or fire or strongly recommend firing, hiring, or changing the status of other employees.
• Administrative Exemption: To qualify for non-exempt status, administrative employees must have the primary duty of performing office or non-manual work that relates to managing the general business operations of the employer or customers. They must also have the discretion to make independent judgment calls in matters of significance.
• Professional Exemption: Professional jobs with non-exempt employment status require employees to possess advanced knowledge in any field of learning or science. This advanced knowledge should be acquired by prolonged, specialized, intellectual instruction and study. Alternatively, the employee can show high-level proficiency in highly technical fields, such as teaching, computer analytics, and engineering.
• ​High Earning Employees: Employees who earn an annual salary of at least $107,432 or higher qualify as non-exempt if they perform at least one of the duties of an exempt professional, executive or administrative employee.
• Computer-Related Work: Those employed as computer programmers, software engineers, computer system analysts, or similar jobs also qualify for the non-exempt employment status.
• Outside Salespersons: Corporate salespersons qualify as non-exempt employees if their primary duty is to make sales or obtain contracts/orders. They perform their duties in places other than their employer’s work premises.

Salary vs. Hourly Pay

Employees paid by the hour are non-exempt employees. They receive overtime pay for any additional hours they put in. This kind of pay also determines workplace policies.

For example, employers of hourly paid employees must track attendance and time worked to ensure payroll accuracy. 

An exempt employee generally receives a salary; this disqualifies them from overtime pay. Employers rarely track time worked for salaried employees unless they incentivize them to put in extra hours.

However, there are some exceptions when salaried employees fall under the non-exempt status, and hourly employees fall under the exempt status.

A salaried employee falls under the non-exempt employee category and is eligible for overtime if:

• The employee’s duties don’t meet labor laws requirements.
• The salaried employee earns less than $684 per week or $35,568 per year.
• The employee has certain deductions removed from their salary.

On the other hand, some hourly employees are exempted from overtime pay. These hourly exempt employees are typically found in railroad, agriculture, and movie theater businesses.

 

Overtime Pay

According to the overtime rules by the FLSA, non-exempt employees must receive at least one-and-a-half times their regular pay rate for any hours over 40 hours in a workweek. 

If the non-exempt employee receives a salary instead of hourly wages, the overtime pay is calculated by dividing the total compensation earned by the total hours worked. Holidays, sick days, and vacations are excluded from the calculation unless the employee works on those days.

Employees are exempted from receiving overtime pay if they:

• Receive a salary of at least $684 per week or $35,568 annually and 
• Perform the duties of exempt work positions (professional, executive). 

Employers are also not required to pay overtime to employees who earn at least $107,432 or more per year.

The implication for exempt employees is that they must devote as many hours as necessary to complete their tasks. They don’t receive additional compensation even if their duties require them to devote more than 40 hours a week.

On the other hand, non-exempt workers get paid for hours worked, so it is to their advantage if they devote extra hours to their work. Therefore, many employers try to keep the hours worked by non-exempt employees as low as possible.

On the surface, it might look like non-exempt workers at an advantage. But many salaried positions come with opportunities for annual increments based on work performance. Some employers also offer incentives for salaried employees who put in extra hours.

Exempt Employees

An exempt employee is an employee that is:

• Paid a salary
• Earns over a specified salary threshold, and 
• Performs professional, executive, or administrative duties.

Exempt employees are exempted from the FLSA and are often managerial or highly specialized job positions. 

These employees may not receive any overtime pay, but they benefit from their employers’ compensation and other benefit packages. Some employers also often offer raises to workers who are consistently required to work overtime.

Human resource managers use the duties test set by the U.S. Department of Labor to determine if a job position is exempt or non-exempt. There is also a three-pronged test that employers can use to tell if an employee is exempt.

Any employee that earns a salary and meets these criteria is considered exempt:

• Salary threshold: Salary is a minimum of $684 per week or $35,568 per year.
• Salary basis: Salary is paid regularly at a fixed amount commensurate with the annual salary regardless of the total hours worked.
• Duties: The worker performs duties performed in administrative, professional, executive, computer, or outside sales fields.

Many states also have wage and hourly-rate laws. Some of these laws make provisions for special classifications of workers like:

• Independent contractors
• Temporary employees
• Interns
• Volunteers
• Part-time workers
• Foreign workers
• Apprentices
• Exempt occupations 

Employers must abide by both federal and state laws to stay compliant.

Non-Exempt Employees

A non-exempt employee is an employee that is paid at least minimum wage and is eligible to receive overtime.

According to the Fair Labor Standards Act, non-exempt employees are entitled to overtime pay when they work beyond 40 hours each workweek. Some states also have overtime pay guidelines. 

Employers in those states should check the state’s Department Of Labor website for rules that apply to them.

At the federal level, all non-exempt employees must be paid a minimum of $7.25 for regular time and at least one-and-a-half times their hourly rate for overtime hours.

 

Determining Which Classification Is Right for You

Working an exempt or non-exempt job role comes with its respective advantages and disadvantages. The best one for you depends on your personal needs and preferences.  

There are many advantages to a non-exempt work position. Firstly, the worker has greater control over the hours worked and pay. You can choose to earn more by putting in a few extra hours every week. You can also choose to work part-time and pursue other easy jobs that pay well.

The major disadvantage of a non-exempt job position is strict monitoring. That is because employers expect to have work done for every hour they pay for. They are strict with casual things such as water breaks, workplace chatter, and restroom breaks. 

On the other hand, exempt workers can spend a lot of time doing other activities during their work hours. Many employers allow such latitude if the employee delivers on their required duties. 

Furthermore, exempt employees usually earn more than non-exempt employees. That is because they are required to complete their tasks regardless of the hours required. 

Another upside to exempt work positions is that they can also get other benefit packages to compensate for the extra hours put into the work.

On the downside, exempt positions rarely allow employees to pursue other job opportunities. Furthermore, salaried employees might have to wait a year or more before they can negotiate a raise in their salaries even if they put in extra hours.

The Bottom Line

There are generally two types of employees: exempt and non-exempt employees. The key factors that determine if an employee is exempt or non-exempt are pay amount, job duties, and whether they are paid hourly or not.

The major difference between exempt and non-exempt employees is that exempt workers are not entitled to certain protections and benefits under the Fair Labor Standards Act. This federal law specifies the minimum wage and overtime pay requirements for workers.

Employers must currently classify and pay their employees or risk expensive penalties for compliance violations.

Frequently Asked Questions

What are the differences between non-exempt and exempt jobs?

There are four main differences between non-exempt and exempt jobs. These are:

• Payment Requirement: Non-exempt jobs pay an hourly rate equal to or above the federal minimum wage. Exempt positions pay a fixed salary equal to or above the specified salary level.
• Duties: Non-exempt jobs include positions that do not require managerial or highly specialized skills. Exempt jobs require workers to perform non-menial and supervisory futures related to management and general business operations. High salary jobs and work in computer specialized fields are also exempt jobs.
• Time: Time is a key factor in non-exempt jobs. Employees of non-exempt workers must record attendance and hours worked to calculate payroll accurately. Attendance and hours worked are not critical factors for exempt employees.
• Overtime Pay: Non-exempt jobs provide overtime pay when workers put in more than 40 hours per workweek. Exempt positions do not compensate employers who work for more than 40 hours per week.

  

Are exempt employees required to work a certain number of hours?

There is no federal law stating how many hours exempt employees must work per week. In most cases, they are expected to put in as many hours as necessary to complete their assigned tasks and carry out tasks.

They get paid for getting work done regardless of whether they worked for less than 40 hours a week or more than 50 hours per week.

However, some employers require exempt workers to work 40 hours per week. In companies with such a policy, employees may monitor attendance and take disciplinary action such as job termination on defaulting employees. 

However, they cannot deduct pay simply because the employee doesn’t work 40 hours per week, which can disqualify the employee for exemption.

Some companies also compensate those who meet or exceed 40 hours per workweek. This depends on how the company policies on rewarding employees.

How are exempt and non-exempt employees classified?

The most significant way to classify employees into exempt or non-exempt positions is whether they qualify for overtime pay. Exempt employees do not qualify for overtime pay, while non-exempt employees get overtime pay for any extra hour beyond 40 hours per week.

Since non-exempt employees are entitled to overtime pay, employers are obligated to track work hours under state and federal laws.

Federal and state laws dictate overtime pay requirements. So, employees must comply with these laws to avoid costly penalties for compliance violations.

Exempt employees are not entitled to overtime pay. Therefore, some employers do not bother to track how many hours the employee puts in during the week.

State laws on classifying exempt vs. non-exempt employees vary from state to state. In California, for instance, employees must receive at least twice the prevailing minimum wage to receive the exempt status. Employees who receive less than this are automatically classified as non-exempt employees and are eligible for overtime pay.

In New York, the actual minimum wage rate for an exempt job position is in phases and depends on geographic location and employer size. 

This discrepancy in state laws is responsible for the uneasy classification of exempt and non-exempt employees.