The Difference Between Exempt vs. Non-Exempt Employee

Employees in your organization are generally classified as either an exempt employee or non-exempt employee. Each classification has its own eligibility requirements, with different types of workplace benefits. To ensure duties and compensation are assigned accordingly based on exemption status, it’s important to know if your employees are considered exempt or non-exempt.

 

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What is an exempt employee?

An exempt employee is not eligible to receive overtime pay, and is excluded from minimum wage requirements. One of the main differences between exempt employees and non-exempt employees is that exempt employees receive a salary for the work they perform, while non-exempt employees earn an hourly wage. 

 

Here are some basic guidelines about exempt employee benefits:

 

  • The Fair Labor Standards Act (FLSA) provides no guarantees regarding overtime pay and minimum wage for exempt employees. Rather, an employer has the authority to determine what to pay these individuals for overtime work. 
  • Besides the FLSA, the federal government and individual states have several laws addressing the classification of employees and their rights. To ensure you classify employees into the correct category, it’s important to learn about the position of labor laws on exempt and non-exempt employees. 

 

So what is a non-exempt employee? Unlike exempt employees, non-exempt employees are eligible for overtime pay and hourly wages. This means that once an exempt employee  works over 40 hours per week, their employer must pay them overtime.

 

Related: How to Hire Your First Employee

 

Requirements for exempt employees

There are three main requirements employees must meet to be considered exempt, including:

 

Salary payment

Exempt employees earn a salary rather than an hourly rate, so employees are exempt so long as they are entitled to a monthly base payment higher than the FLSA minimum threshold, regardless of the number of hours of work they complete per week.

 

Total earnings

Employees must earn the salary threshold set by the FLSA to be exempt. The minimum salary threshold of the FLSA changes every year, so it’s important to stay current on the regulations for proper employee compensation. For 2020, employees must earn a minimum or $684 per week or $35,568 per year to have exempt status. Conversely, employees who earn below this amount are designated as non-exempt.

 

Job duties

Beyond meeting salary and earning requirements, exemption generally only applies to employees who hold professional roles that require a higher level of expertise and knowledge.

 

Types of exempt employees

There are several types of exempt employees, including:

 

Executive exemption

Employees who hold executive exemption status must meet the following requirements:

 

  • Regularly supervise two or more full-time employees or four part-time employees
  • Be responsible for managing at least part of the business
  • Play an important role in the job status of other employees, such as hiring and delegating tasks

 

Administrative exemption

Employees must meet the following criteria to have administrative exemption status:

 

  • Perform office or non-manual work directly related to the business operations or management of the organization and its customers
  • Exercise independent judgment and discretion over important business decisions without reporting to another person

 

Professional exemption

Employees must meet the following requirements to have a professional exemption status:

 

  • Perform job duties that require specialized education and exercising discretion and judgment
  • Have a college degree or higher educational qualifications in their particular field
  • Hold a creative professional exemption that applies to employees who work in a creative or artistic field, and use their originality, talent, imagination and inventiveness to perform job duties

 

Computer exemption

To be in this category, employees must meet the requirements for exemption and have a computer-related role.

 

Highly compensated employees

This applies to employees who have an office or non-manual job responsibilities and earn the FLSA’s minimum salary for highly compensated employees. These employees must have at least one duty of an exempt administrative, professional or executive employee.

 

Outside sales exemption

Employees exempted based on outside sales must meet the following qualifications:

 

  • Perform a primary duty of making sales or securing contracts or orders
  • Conduct their work outside of their employer’s business premises

 

Related: How to Set Employee Salaries

 

Examples of exempt vs. non-exempt employees

Here are some examples of exempt employees based on their classification:

 

  • Exempt administrative employees provide support services to production and operation staff. They include employees in human resources, accounting, legal, public relations, compliance, finance, payroll and other related roles.
  • Exempt executive employees include the CEO, managers, supervisors and other workers who play a decision-making role in an organization.
  • Exempt professional employees include doctors, lawyers, licensed engineers, registered nurses, dentists, architects, teachers and other roles that require advanced education.
  • Exempt creative professionals include writers, actors, musicians, journalists, artists and composers.
  • Exempt outside sales employees include salespeople and marketers.
  • Computer-related jobs with exempt status include computer programmers, software engineers and systems analysts.

 

Non-exempt employees are guaranteed an hourly wage and overtime pay under the FLSA. They must earn at least the federal or state minimum wage for every hour worked, and overtime pay for any amount of time exceeding 40 hours. Any job that earns a minimum wage, is eligible for overtime pay and does not meet the requirements of exempt employees is considered non-exempt. 

 

Examples of non-exempt employees include contractors, freelancers, interns, servers, retail associates and similar jobs. Even if non-exempt employees earn more than the federal minimum wage, they still take direction from supervisors and do not have administrative or executive positions. 

 

Related: How to Create a Time Off Policy

 

Exempt employee FAQs

 

Can exempt employees get overtime?

No, exempt employees do not qualify for overtime. Overtime is any amount of time worked in excess of 40 hours per week.   

 

Can an exempt employee be suspended without pay?

Yes, the Fair Labor Standards Act allows employers to suspend exempt employees without pay if they violate workplace regulations, which can vary among employers.

 

Do exempt employees have a special tax status?

No, exempt employees do not have any special tax status.

 

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Last updated: Nov 15, 2020