Difference Between an Exempt and a Non-Exempt Employee

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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 being paid overtime.

Exempt vs. Non-Exempt Employees

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

Exempt Employees
Certain types of employees, often classified as exempt employees, are not entitled to overtime pay as guaranteed by the Fair Labor Standards Act (FLSA). To add to that, most states have their own wage and hourly rate laws that have even more requirements in addition to the FLSA. It is imperative that companies follow both the state and federal employment laws in order to remain legally compliant. 

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 considered 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. In general, to be considered an “exempt” employee, you must be paid a salary (not hourly) and must perform executive, administrative or professional duties.

To complicate matters further for employers, there are additional federal, state, and FLSA laws related to other classifications of workers, such as interns, independent contractors, temporary employees, volunteers, workers in training, and foreign workers, that employers are required to abide by.

Non-Exempt Employees
A non-exempt employee is entitled to overtime pay through the Fair Labor Standards Act (FLSA). Employers are required to pay time and a half the employee’s regular rate of pay when they work more than 40 hours in a given pay week. Most employees must be paid the federal minimum wage ($7.25 in 2017) for regular time and at least time and a half for any hours worked over the standard 40.

Types of Exempt Employees

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

  • Executive
  • Professional
  • Administrative

These categories are purposefully broad to encompass many types of jobs. However, 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 can 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 employment tests regarding their salary, 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.
  • Bethany earns $400 per week, so she is guaranteed to earn overtime for her extra hours at the office.
  • 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 Since 2016

The following changes were expected to go into effect on December 1, 2016:

  • The salary for eligibility for overtime pay would be increased from $455 per week to $913 per week or $47,476 per year.
  • The salary threshold for eligibility would be updated every three years, beginning on January 1, 2020, based on wage growth.

Update: A federal judge in Texas 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 Department of Labor has since filed a notice to appeal the injunction, as well as moved to expedite the appeal, an action approved by the Court. The Department of Labor released a statement that it vehemently disagrees with the decision by the Court, and maintains the legality of their recent Overtime Final Rule. Since the block, an amicus brief was filed by dozens of Congress Members, urging the Court to reconsider the injunction.

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