Exempt vs. Non-exempt Employee: What's the Difference?
Exempt vs. Non-Exempt Employees: The Differences, the Pros and the Cons:
Business owners have a lot of responsibilities and duties, not only to their customers but to their employees. One of your biggest responsibilities is to make sure your staff is properly compensated for the work they do. But this isn’t as simple as it sounds. Making sure your employees are paid correctly is about more than just paying them enough to meet their needs and is within your business’s budget. You must meet legal requirements set under the Fair Labor Standards Act (FLSA), including those for exempt and non-exempt employees.
What is an Exempt Employee?
You may be wondering what exactly an exempt employee is and what exactly they’re exempt from. Exempt employees are frequently salaried employees. They’re paid a set annual amount, not including bonuses or other compensation, and they’re not legally entitled to overtime pay. Meanwhile, non-exempt employees are the ones who are typically paid by hourly wage. These employees often don’t receive any other benefits, but the FLSA legally requires employers to provide them with overtime pay once they’ve worked more than 40 hours in a single workweek.
While the FLSA grants non-exempt status to hourly employees, there is an important caveat. This status doesn’t apply to hourly employees whose pay equates to a salary over or equal to an FLSA-set threshold or does not meet FLSA duty requirements.
Who are my Exempt and Non-Exempt Employees?
While the key defining difference between an exempt vs. non-exempt employee is the method by which they’re paid, there are often differences in the duties each one does that tend to come with their exemption status. Most non-exempt employees are hired for positions with simpler responsibilities. Their usual work is often routine tasks, like data entry, shelf stocking, cleaning and maintenance, retail customer service, and similar jobs. Employees with non-exempt status usually don’t require extensive specialized training or education to handle their duties, nor do they manage other employees.
Exempt employees, meanwhile, tend to have more complicated positions with multiple responsibilities, some of which may be administrative, managerial, or executive in nature. Their duties tend to require extensive training or higher education, including but not limited to a college degree. Exempt employees also tend to have supervisory roles in a business, overseeing one or more other staff members.
Because the duties of exempt employees tend to vary more, there are a number of sub-types, which include the following:
- Executive exemptions – employees who regularly supervise others, managing at least one part of the business, and have a role in the job status of others.
- Administrative exemptions – employees whose work is directly related to operations or organization/business management.
- Professional exemption – employees who have specialized education, such as higher education, and/or have a job involving creativity, such as engineering, design, or artistic work.
- Computer exemption – employees whose duties include computer/IT-related roles.
- Highly compensated – employees who hold an administrative, professional, or executive position in the business and who earn enough to meet the FLSA minimum for a highly-compensated employee.
- Outside sales – employees who work outside the business premises, making sales or security contracts.
The Benefits and the Drawbacks
To understand if your position requires an exempt vs. non-exempt employee for a job, it’s important to consider the job description and responsibilities. Applicants who qualify for exempt employee status tend to be more educated, trained, and experienced. They typically can handle more responsibilities and can work extra hours without requiring overtime.
As compensation is considered, base salary for non-exempt employees is often higher than for non-exempt. What’s more, while you don’t pay an exempt employee overtime, you do have to pay them their base salary even if they work fewer than 40 hours a week; you can’t deduct pay for hours not worked. Finally, exempt employees often require some other form of compensation for their work, such as travel expenses or paid time off.
Non-exempt employees, meanwhile, can be paid solely for hours worked rather than a base salary, so you don’t have to pay for more work than they provide
You will, by law, have to provide them overtime pay if they work more than 40 hours a week (make sure to check the overtime laws in your state when you pay non-exempt employees hourly wages, you have to keep careful records of hours worked and accurately calculate their pay to prevent over- or under-compensation.
Crossing the T’s and Dotting the I’s
When comparing exempt vs. non-exempt employees, be aware of the reports you need to fill out and the records you need to keep. As an employer, you’re required by the FLSA to keep records of all employee names, addresses, dates of birth, genders, occupations, workweek days, regular pay rates and exclusions (if paid overtime), wage basis, hours worked, straight-time earnings, weekly overtime pay, deductions from and additions to wages, pay periods covered, pay dates, wages paid by pay periods, retroactive payments, payroll certificates, union agreements, and benefit plan documents. You’ll need to maintain each of these records for each employee for at least three years.
Sometimes supplemental records are also required. Timecards, wage rate tables, work time schedules, and job evaluations are often maintained for a minimum of two years. The FLSA sets these record-keeping requirements, but others may be required by your state labor office.
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