In a workplace, there exist two types of employees: exempt and non-exempt. They are classified as either exempt or non-exempt based on the type of work they perform and the salary/wages they earn.
The Fair Labor Standards Act (FLSA) requires employers to classify every job as exempt or non-exempt from overtime pay and/or minimum wage.
Read our guide to know more about exempt and non-exempt employees and how they differ from each other.
What is an exempt employee?
An exempt employee is a salaried employee who is exempt from ‘minimum wage and/or overtime pay, regardless of the hours they put in extra per week or per day’. The exempt employees receive the same amount of pay per pay period, even if they put in extra hours for work.
What Qualifies As an Exempt Employee?
Typically, for employees to qualify as exempt from minimum wage and overtime pay, they need to meet these three tests:
- Job Duties. Employees need to exercise independent judgment and discretion while performing their job responsibilities.
- Salary Level. An exempt employee is paid a salary that meets the minimum threshold under the FLSA.
- Salary Basis. Employees’ salary isn’t reduced based on the quality or quantity of their work.
Note: Some states have different requirements than those specified under the FLSA. Be sure to check applicable state law for each of the tests above.
Types of Exempt Employees
The FLSA recognizes the following main categories of exempt workers:
- Outside Sales
As of January 1, 2020, the FLSA stipulates that employees in the above categories are exempt if they are paid by salary as opposed to hourly and if they earn a minimum of $684 per week or $35,568 annually. This is an increase from $455 per week or $23,660 annually.
What is a Non-Exempt Employee?
A non-exempt employee must receive at least the minimum wage for all hours worked and is eligible for paid overtime for any hours worked in excess of 40 hours per week.
Typically, non-exempt employees are paid on an hourly basis, but employers can decide to pay them on a salary basis and also pay for the applicable overtime.
Under federal law, a non-exempt employee who works for more than 40 hours in a workweek must be paid for the overtime at 1.5 times the employee’s regular rate of pay. For example, if an employee worked 55 hours in a workweek, they would be paid their regular rate of pay for 40 hours (federal minimum wage is $7.25 in 2021), plus an additional 15hours at the overtime rate (1.5 times the employee’s regular rate).
Exempt vs. Non-Exempt Employees
|Exempt Employees||Non-Exempt Employees|
|Not entitled to overtime pay by the Fair Labor Standards Act (FLSA)||Not exempt from FLSA regulations and are entitled to overtime pay|
|Given a salary, and are expected to finish the tasks assigned to them, regardless of how many hours it takes||Receive the minimum hourly wage for 40 hours per week and are entitled to receive 1.5 times their hourly rate for the hours they worked beyond 40 hours each week.|
|Must earn a minimum of $684 per week or $35,568 annually, in the form of a salary instead of on an hourly basis||Must be paid federal minimum wage of $7.25 (2021) either by a salary or an hourly wage|
|Job role examples: Executive, professional, administrative, and outside sales||Job role examples: Freelancers, contractors, servers, retail associates, interns, and similar jobs|
Let’s Consider This Example to Demonstrate the Difference:
Jessica is an exempt employee. Her proposal is due on Monday and she is stressed. So, she stays until late in office and spends her Friday night burning the midnight oil, tweaking and finishing up her proposal. On Monday, she receives a paycheck — the same amount of money she would’ve got even if she hadn’t worked overtime.
An exempt employee is not entitled to paid overtime under the Fair Labor Standards Act (FLSA).
Meanwhile, James, a non-exempt employee, chooses to take extra shifts and work overtime on Friday to finish up the project. He doesn’t have to, but he knows that if he works overtime, he’ll receive extra money for the extra work hours he has put in.
Non-exempt employees are entitled to overtime pay, 1.5 times their hourly rate, for any hours they work beyond 40 hours per week.