What Is the Difference Between an Exempt and a Non-Exempt Employee?

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Some employees are exempt from overtime pay requirements. ONOKY - Fabrice LEROUGE/Brand X Pictures/Getty Images

There are two basic types of employees in the workplace -  “exempt employees” and “non-exempt employees.” What’s the difference between these types of workers and the jobs they hold? The most significant difference is pay for overtime work. The term “exempt” means exempt from having to be paid overtime.

The Difference Between Exempt and Non-Exempt Employees

There are regulations which govern whether an employee can be exempt from receiving overtime pay.

Certain types of employees, who are classified as exempt employees, are not entitled to overtime pay as guaranteed by the Fair Labor Standards Act (FLSA).

The FLSA requires that employers must pay at least minimum wage for up to 40 hours in a work week and overtime pay for any additional time unless the employee falls into an exception category. In addition to the Federal Act, many states have their own set of wage requirements and laws and it is imperative that employers abide by both federal and state law to stay compliant.

If an employee is classified as exempt (vs. non-exempt) their employer is not required to pay them overtime pay. It is at the employer’s discretion whether or not to pay for hours worked overtime. Some employers might create an employee benefits package with extra perks in lieu of overtime pay. 

Types of Exempt Employees

The Fair Labor Standards Act (FLSA) recognizes three main categories of exempt workers:

  • Executive
  • Professional
  • Administrative

These categories encompass many types of jobs. It is the tasks performed on the job, not the job title alone, which determine exempt vs. non-exempt employment status. The FLSA guarantees non-exempt employees one and one-half times their normal pay rate for overtime worked during a given work period.

Guidelines for Exemption from Overtime Pay Requirements

Administrative, executive and professional employees, salespeople and STEM (Science, Technology, Engineering, and Math) employees may be classified as exempt and, therefore, ineligible for overtime pay if they meet the following criteria:

  • Employees are paid a salary as opposed to being paid on an hourly basis.
  • Employees earn at least $455 per week.
  • Employees are paid a salary for any week they work.

In addition, to qualify for exemption from overtime, employees generally must also meet certain tests regarding their job duties and responsibilities.

Exceptions to Overtime Requirements

In general, non-exempt employees earning less than $455 per week, which is $23,660 per year, are guaranteed overtime pay. Some exceptions to this include researchers or those working under an educational or governmental grant.

Examples:

  • Susan is an exempt employee, therefore not entitled to overtime pay.
  • John is a non-exempt employee, so he works as many overtime hours as he can because he earns one and a half times his hourly wage.
  • After her promotion and salary increase, Reshma was no longer a non-exempt employee eligible for overtime pay.
  • Rob took the first of two job offers despite the lower salary because he would be eligible for overtime pay.

Changes to Overtime Pay 2016

The following changes are scheduled to go into effect on December 1, 2016:

  • The salary for eligibility for overtime pay will increase to $455 per week to $913 per week or $47,476 per year.

  • The salary threshold for eligibility will be updated every three years, based on wage growth.

Update: A federal judge has temporarily blocked the overtime rules scheduled to go into effect on December 1, 2016. The current overtime pay rules will remain in effect while the ruling is in place. The Labor Department is determining options for appealing the decision.

Read More: What is an Hourly Employee? | What is a Salary Employee |  How Much Do I Get Paid for Overtime?

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