Exempt versus Non Exempt Retail Employees

Classifying Your Retail Employees Correctly

exempt retail employees

The difference between an exempt retail employee and a non-exempt one can be a true source of confusion for retail storeowners. I remember thinking I had it down and then explaining it backwards at a meeting with my store managers. Not every employee in the US is governed by this act, for example, farmers or truck drivers are not under this law. However, all retail employees in stores and warehouses are required to be classified correctly.


Employee classification is governed by the  Fair Labor Standards Act (FLSA) first established in 1932. It provided for a 40-hour work week, established a minimum wage and required companies to pay time and a half for all overtime hours. In addition, this act established child labor laws. (There is a proposal to change much of this legislation in congress now.) 

A non-exempt employee must be paid the federal minimum wage and is eligible for for overtime for any hours worked over 40 during a specific week. (Calculation of overtime pay varies by state so make sure you check with your state office.) This applies to most workers especially if they are paid hourly. There is no limit on how many hours an employee can work in a week. But all hours over the 40 hour limit must be compensated at one and a half times the regular rate of pay. NOTE: New overtime laws and regulations are starting in 2017.

 Here is an article to help you prepare.

One area that gets retailers in trouble is asking hourly workers to attend training or meetings "off the clock." All hours requiring attendance of an employee must be compensated. Some companies try to get around this rule and make the meetings voluntary, but if an employee feels his or her job is in jeopardy if they do not attend the meeting, then it really doesn't matter; it's mandatory.

Also, the FLSA does not require a set break time or meal time for an employee, this is set by each State. Nor does it list specific requirements to keep employees healthy

An exempt employee does not receive any protection or benefit from the FLSA law - which explains where the term "exempt" comes from. There are two basic "tests" you use to determine if the employee should be exempt. They are salary and duty. 

The salary test states that if an employee earns more than $23,600 per year ($455 per week) he or she is likely exempt. This amount is the equivalent of a full years worth of work at a rate of approximately $11 per hour.   Employees who earn in this range typically have other duties or responsibilities that require them to work a salaried work week. 

The duties test asks these three questions: 

  1. Does the employee regularly supervises two or more other employees, plus
  2. Does the employee have management as the primary duty of the position, plus
  3. Does the employee have some authority over other employees such as hiring, firing and promotions

It is possible for an employee to be exempt without supervising other employees, but those cases usually apply to outside sales workers and not retailers.

But as a general rule, a store manager who supervises other employees is always exempt, but the assistant store manager may not be. 

Many retailers like to classify employees as exempt because it is a salaried position and therefore is not regulated by a time clock. This means the employee may work 40 hours one week and 60 hours the next, but for the sam base rate of pay. Again, in some states, there are rules on the amount of hours a salaried employee can work as well. In certain cases, even the salaried employee is due overtime if it exceeds a reasonable level. So be careful not to use the exempt classification just to "get more hours" out of an employee. Make sure they pass the duties test as well. If in doubt, here is a tool to help you determine the right status. 

Retailers must display the FLSA poster in the store at all times.

Typically these posters get called the "Minimum Wage" posters, but they are from FLSA. This poster explains all of the rules around FLSA and provides contact information for an employee to make a claim with the federal government if he or she feels they are being treated unfairly.