Workers and bosses both need to understand the difference between exempt and non-exempt employees.
There are many different types of classifications for different kinds of employment. There are W2 employees, 1099 employees, exempt employees, non-exempt employees, and more.
Business owners need to understand which employees are exempt and which are not in order to pay their workers correctly. Likewise, employees need to know the difference so they can make sure they are being compensated fairly.
Whether you are an exempt or non-exempt employee there are many benefits to be had. No matter which job type you have, it's always a good idea to make sure you understand the difference so you can make sure you receive the type of compensation and overpay rules you are entitled to.
What is the Fair Labor Standards Act (FLSA)?
Exempt vs non-exempt has to do a lot with something called the Fair Labor Standards Act (FLSA). This is an act created and maintained by the Department of Labor (DOL).
The FLSA outlines all the aspects of exempt and non-exempt employees. It overviews things like what qualifies someone as an exempt or non-exempt employee and what the rights and guidelines for each type of employment are.
The FLSA is there to guide business owners and protect their employees so that basic aspects of compensation and overtime can be fair and consistent across the states.
By now, you might be wondering what exactly employees are exempt or not exempt from? This classification refers to whether a worker is exempt from the FLSA regulations or not. So exempt employees don't have to follow FLSA guidelines while non-exempt employees do.
What Does Exempt Mean?
When someone is exempt it means their job does not have to follow the FLSA guidelines. This means their job does not have to meet requirements like the federal minimum wage. They are also not entitled to things like overtime pay when they work more than 40 hours a week.
What Does Non-Exempt Mean?
When someone is non-exempt it means their job does have to follow the FLSA guidelines. This means their job does have to meet requirements like the federal minimum wage and they are then entitled to overtime pay if they work more than 40 hours in one week.
What are Exempt Employees?
Exempt workers are paid an annual salary and not an hourly wage. Salary workers don't have to track the time they work by clocking in and out each day because they aren't paid by the hour. Instead, they receive an annual salary that's usually divided into regular paychecks throughout the year.
When a worker is exempt from the FLSA that means they also aren't entitled to things like overtime pay.
It's also important to note that if you are exempt or nonexempt does not depend on the job title you have but rather on employee earnings, overtime rules, and the duties an employee performs.
You qualify as an exempt employee when you meet the following criteria set by the FLSA:
- You are paid on a salary basis and not an hourly basis
- You are paid at least $35,568 per year
- You are paid at least $684 per week
- You perform exempt, high-level job duties that require high-level skills, training, or education
Specific state laws where you live may also apply to an employee's exempt or non-exempt status.
What are Non-Exempt Employees?
Non-exempt workers are paid an hourly wage and not an annual salary. Wage workers have to keep track of their time by clocking in and out at the beginning and end of each workday because they are paid by the hour.
When a worker is non-exempt from the FLSA that means they are entitled to things like overtime pay and federal minimum wage requirements.
- You are paid on an hourly basis and not a salary basis
- You are paid at least the current federal minimum wage
- You have to clock in and out of work
- You are paid overtime compensation for hours worked past 40 hours a week
Specific state laws where you live may also apply to an employee's exempt or non-exempt status.
Pros and Cons of Exempt vs Non-Exempt Employees
Both employment types come with many pros and cons. Some benefits of exempt employees are that they often make more money and they aren't tied down by their hours. They also still get a regular paycheck and can enjoy a steady income.
But because exempt employees are not paid by the hour, this can sometimes mean they're required to work longer hours without necessarily getting paid more for doing so.
Non-exempt employees, however, can potentially make more money depending on the hours they work that week since their pay is tied to an hourly rate. Every hour is paid so if they work extra they can make extra.
But non-exempt employees are tied to an hourly wage meaning they do have to keep careful track of their hours by clocking in and out each day.
