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Salary Exempt Vs Non Exempt
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Salary Exempt vs. Non-Exempt Employees: What’s the Difference?
When it comes to paying employees, companies have to follow rules set by the Fair Labor Standards Act (FLSA). One big decision is whether to classify employees as exempt or non-exempt. This impacts overtime pay and other compensation issues, so it’s an important distinction to understand.
What Does Exempt Mean?
An exempt employee is not entitled to overtime pay or the minimum wage under the FLSA. The designation comes from the fact that they are “exempt” from these protections.
To qualify as exempt, an employee generally must meet three criteria:
- Get paid on a salary basis, not hourly
- Earn at least $684 per week (equivalent to $35,568 per year)
- Perform job duties in an executive, administrative, or professional role
There are additional exempt categories too, like certain commissioned salespeople, computer professionals, and outside sales employees. But the duties test is key – if an employee’s role doesn’t fit, they can’t be exempt no matter how much they earn.
What Is Non-Exempt?
A non-exempt employee gets overtime pay and other protections under the FLSA. This includes minimum wage and rules about clocking in and out.
Most hourly workers are non-exempt by default. But some salaried employees like assistants, bookkeepers, and technicians can be non-exempt too if their annual pay falls below the threshold.
Non-exempt status also applies in cases where someone meets the pay level to be exempt but fails the duties test based on their day-to-day responsibilities.
Key Differences in Compensation
Paying exempt vs. non-exempt employees comes with important distinctions:
Overtime Rules
Non-exempt staff get 1.5 times their regular hourly rate when working over 40 hours in a week. Exempt employees’ salaries cover all hours worked – no overtime pay.
Deductions from Pay
Making deductions from an exempt employee’s salary based on hours, quality/quantity of work, or availability of work could jeopardize their exempt status. Non-exempt employees can have pay deducted for such reasons without issue.
Breaks and Meal Periods
Break time of 20 minutes or less must be paid for non-exempt employees. Meal periods of 30 minutes or more do not need to be paid as long as the employee is free from work duties. Exempt status means breaks and meals are handled more flexibly.
Other Implications
Treating employees differently based on exempt vs. non-exempt status goes beyond compensation to impact schedules, time tracking, and more:
- Non-exempt staff generally have more structured schedules, while exempt employees may have flexibility to set their own hours.
- To get overtime pay calculated correctly, non-exempt employees must track all hours worked. Exempt staff do not need to log hours.
- Making non-exempt employees work “off the clock” is illegal. Exempt status grants more latitude here, as long as job duties are still fulfilled.
Of course, employers can choose to pay overtime to exempt staff even though it’s not legally mandated. Some do this to promote work-life balance or avoid overworking salaried employees.
How to Tell If a Role Should Be Exempt
Deciding whether a position should be exempt vs. non-exempt comes down to analyzing the job duties, pay structure, and FLSA classification tests.
Key questions to ask:
- Is the role better suited for hourly or salaried pay?
- What level of discretion/independence applies day-to-day?
- Do responsibilities meet the criteria for executive, administrative, or professional exemptions?
- Is the pay rate above or below the $35,568 annualized threshold?
- How much do working extra hours or unusual schedules impact operations?
There’s no one-size-fits all approach here – it varies by company and employee. Some common examples on both sides include:
Typical Exempt Positions
- Managers & Executives
- Financial Analysts
- Lawyers
- Doctors
- Engineers
- Software Developers
Typical Non-Exempt Roles
- Receptionists
- Assistants
- Data Entry Clerks
- Maintenance Workers
- Cashiers
- Drivers
Of course, duties vary widely even within common job titles, so careful analysis is required on an individual basis.
Mistakes to Avoid
Mix-ups between exempt vs. non-exempt status open employers up to FLSA violations. Avoid these key mistakes:
- Assuming a salary alone dictates exempt status.
- Not confirming duties tests are met before classifying employees as exempt.
- Failing to pay non-exempt staff for all hours worked, including overtime.
- Making improper deductions from exempt employees’ salaries.
- Not understanding state laws, which may exceed federal regulations.
Though the lines can blur sometimes, following FLSA guidelines protects both employee rights and employer interests. When in doubt, seek insight from HR and legal counsel.
The Bottom Line
While exempt employees avoid hourly tracking and get more flexibility, non-exempt staff get overtime and stricter scheduling. Employers must weigh operational needs, budgets, and job types to classify roles appropriately based on the FLSA.
Staying compliant requires regular audits as duties change over time. Keeping up with the latest legal guidance is key too. Learn more here about best practices in setting exempt vs non-exempt status.