Exempt Employees

What Differentiates Exempt Employees from Non-exempt Employees?

Exempt, full time business people talking during a meeting.
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Exempt employees are employees who, because of their positional duties and responsibilities and level of decision-making authority, are exempt from the overtime provisions of the Fair Labor Standards Act (FLSA). Whether an employee is exempt or nonexempt depends on how much money the employee is paid, how the employee is paid, and the nature and responsibilities of the work they do.

Exempt employees are expected, by most organizations, to work whatever hours are necessary to accomplish the goals and deliverables of their exempt position.

Thus, exempt employees should have more flexibility in their schedules to come and go as necessary to accomplish work than non-exempt or hourly employees

Exclusions from the FLSA Coverage

According to the FLSA, "Particular jobs may be completely excluded from coverage under the FLSA overtime rules. There are two general types of complete exclusion. Some jobs are specifically excluded in the statute itself. For example, employees of movie theaters and many agricultural workers are not governed by the FLSA overtime rules. Another type of exclusion is for jobs which are governed by some other specific federal labor law."

There are strict criteria for meeting the exempt qualification. A manager can't just decide to make an employee exempt for ease in calculating salary, even if the employee agrees to it. To meet the conditions for exemption requires that a job meets specific criteria. 

Here are some of the jobs for people who do meet the strict criteria for classification as exempt employees.

Outside sales:  If you go out and meet with customers, you qualify for the exemption. This does not apply to inside sales people, such as call center employees. Even though these people may earn a commission, they are still eligible for overtime pay. Only sales people that actually leave the building qualify.

Managerial Employees: These are people who manage two or more employees and have hire/fire/evaluation authority over them. The manager must also perform managerial tasks. In other words, a fast food restaurant manager who spends 90 percent of her day running a cash register and making hamburgers does not qualify as an exempt employee.

A fast food manager who spends 60 percent of her day handling employee issues, scheduling, hiring and firing, and doing other managerial tasks and 40 percent of her time running a cash register and making hamburgers does qualify as exempt, as long as she also meets the salary basis test.

An employee is paid on a salary basis if the employee has a guaranteed minimum amount of money that he can count on receiving for any work week in which the employee performs any work. This amount doesn't have to be the entire compensation the employee receives, but some amount of pay the employee can count on receiving must be received for any work week in which he performs work. 

Learned professionals: If you work rather independently (not completely, of course), and are a knowledge-based worker, you can qualify as exempt. Accountants (not accounts payable/receivable clerks), doctors, lawyers, registered nurses (but not licensed practical nurses (LPNs), teachers, consultants, and similar jobs with independent responsibilities are exempt.

Administrative professionals: This sounds like administrative assistants, but people in those jobs are almost always non-exempt because of the nature of their job duties. These exempt jobs refer to the people who keep the business running and are generally members of the white collar workforce. Marketing, IT, Human Resources, Finance, and other administrative personnel who require a high degree of knowledge and work independently qualify as exempt.

Minimum salary: In order to be exempt from overtime, your company must pay you a minimum salary level. Currently, that is $455 a week or $23,600 per year. However, the Department of Labor is considering raising that to $50,440 per year. So, stay tuned to how this legal situation plays out.

If you are a manager doing managerial tasks and earning only $40,000 a year, you will become eligible for overtime if this law goes through.

It does not, however, make positions such as teachers eligible for overtime, although many of them earn less than $50,440 per year.

As an employer, note that any position that pays the employee more than $100,000 a year is very likely classified as an exempt position.

More about Exempt Employees

To summarize a few specifications about the classification of an exempt employee, consider the following.

Exempt employees must receive the same amount of pay every pay period, regardless of how many hours they work. (Bonuses are allowed, but salary deductions are not except in special circumstances.)

This means if an exempt employee leaves an hour early on Tuesday, you can't dock her pay. You can deduct it from her PTO bank and you can fire her, but you must pay her the full salary regardless. If an exempt employee is consistently working less than the usually expected forty hours per week, you can consider these actions.

Managers can require strict schedules from exempt employees, but it's generally better to allow exempt employees flexibility in completing their jobs. Remember, with an exempt employee it's all about accomplishment and not about hours worked.

The rules for exemption are quite complicated and often companies make mistakes. If you feel like you should be eligible for overtime pay, ask your Human Resources department to re-evaluate your job. They should be able to justify your exempt status.

If they can't, then you're eligible for overtime pay, going backward and forwards. As a last resort, you can file a complaint with your local Department of Labor.

Exempt Employees Are Often Full-Time Employees

The FLSA does not define what is a full-time employee or a part time employee. What is counted as a full-time employee is generally defined by the employer by policy. The definition of a full-time employee is often published in the employee handbook.

A full-time employee has traditionally worked a 40 hour work week with the expectation that exempt employees will work the hours necessary to accomplish their jobs. A nonexempt employee must be paid overtime for time worked in excess of 40 hours.

Today, some employers count employees as full time if they work 30, 32, or 36 hours a week. In fact, fewer required work hours is considered a non-standard benefit in some organizations.

In many organizations, one differentiation between full time and part time employees is eligibility for benefits such as health insurancepaid time off (PTO)paid vacation days, and sick leave. Some organizations enable part time employees to collect a pro-rated set of benefits.