Exempt vs Non-Exempt Employees

Understanding the difference between exempt and non-exempt employees.

What is an Exempt employee?

Exempt employees do not receive overtime pay, nor do they qualify for minimum wages as per the rules set up by the Fair Labor Standards Act - FLSA. Exempt employees get a fixed salary every month, whether they work more than hours set up per working day or even take time off. They need to complete a set amount of work. The working hours for full-time, exempt employees are considered to be 40 hours per week.

What qualifies as an Exempt employee?

• The exempt employees’ duties must consist of executive, administrative, computer-related, and professional positions.
• The employee must get a salary that is twice the state minimum wage for full-time employment.
• The minimum salary requirement for an exempt employee in California under the white-collar exemption is $49920 for an employer who employs 25 or fewer employees and $54080 for an employer who employs more than 25 employees.
• An exempt employee must be paid not less than $455 per week (or $23660 annually) to $684 per week (or $35568 annually).

These exemptions apply to specific jobs like:

• Commissioned employees
• Administrative employees like employees in human resources, legal, finance, public relations, accounting, and other roles.
• Professionals employees like teachers, dentists, architects, nurses, lawyers, engineers, software professionals, Physicians, and surgeons.
• Executive employees like the CEO, managers, supervisors, and other people who play a vital role in decision making for the organization.
• Outside salespersons
• Truck drivers
• Union employees
• Agricultural workers
• Babysitters and domestic companions

What is a Non-Exempt Employee?

Non-exempt employees, as per rules set by the Fair Labor Standards Act - FLSA are eligible for overtime pay and state or federal minimum wage for every hour worked. A non-exempt employee must earn the least federal minimum wage of $7.25 per hour. Their overtime pay is at least one and a half times their regular wage for any hours worked beyond 40 hours each week.

For example, if an employee has worked for 50 hours a week and earns $10 per hour, then for 40 hours, the employee will get $10 per hour, and he will get $15 for the next 10 hours, which are considered overtime.

Who are Non-Exempt employees?

1. They are usually supervised and therefore have minimal opportunity for independent judgment.
2. Their work does not involve decision making.
3. They do not have administrative or executive positions.

Examples of Non-Exempt employees are:

• Contractors, Freelancers, Carpenters, Electricians, Retail associates, Fast food workers.
• Employees mostly working from sectors like construction, maintenance, assembly line workers, and other work that involves physical labor.

What is the difference between exempt and non-exempt employees?

The primary difference between exempt and non-exempt employees is the eligibility for overtime pay or compensation they receive.

Business impact on an Exempt employee vs. Non-Exempt employee:

If a business is closed for a certain period due to natural disasters or like the current pandemic COVID-19, the impact will be different in both cases.

• If the non-exempt employees have not put in any working hours or have not worked on any tasks, then they are not eligible for any kind of pay. But they are eligible for the payment if they are remote working and record task and time using templates.
• As far as salary for exempt employees is concerned, they will receive their paycheck regularly, regardless of the number of hours they have worked.

To be an Exempt or Non-Exempt employee?

1. Exempt employees will receive full salary irrespective of the number of hours worked and the quantity and quality of work performed. Non-exempt employees are paid for every hour they have worked, so their time spent on tasks is crucial and needs to be monitored.
2. A non-exempt employee can enjoy the compensation for the additional work hours, although this may be at a lower rate than an exempt employee. In contrast, exempt employees will receive a full paycheck irrespective of the time he takes off or leaves early from his work occasionally.
3. In case of any crisis, exempt employees can work remotely or put in fewer hours but still, they will receive a full paycheck. For non-exempt employees, if they are required to be physically present for their job and unable to perform their tasks, they are not entitled to receive any compensation.
4. Exempt workers can receive benefits like time off, healthcare coverage after retirement, which non-exempt employees cannot get. However, both exempt and non-exempt employees are eligible for government employment benefits.
5. As far as taxes are concerned, there is no difference in how both employees are taxed. All their pay is earned income, whether it is earned on an hourly basis or monthly basis.

The guidelines vary from state to state, so if you pay employees in different states, be sure to check regulations for each state.