What Is The Difference Between Exempt And Non-Exempt Workers?

Most jobs are governed by The Fair Labor Standards Act (FLSA). They are classified as either “exempt” or “non-exempt”. Employees in certain occupations (agricultural workers, railroad workers) are excluded from FLSA. It is best to do your due diligence in determining how you are impacted by FLSA first.

Let’s assume for the sake of this discussion, you are.

What is FLSA?

The Fair Labor Standards Act was enacted in 1938 to prohibit employers from taking advantage of employees. A few of the provisions it includes are:

• Prohibiting child labor
• Setting minimum wages
• Requiring overtime pay
• Requiring equal pay (no sex/gender based wage differences)
• Requiring record keeping.

That brings us to the second consideration: “Are you an exempt employee or a non-exempt employee under FLSA?”

Employees are general presumed to be non-exempt and entitled to overtime pay. Employers must pay non-exempt workers one and half times their regular hourly rate of pay when more than 40 hours of work occur during a week. Non-exempt employees must also be paid no less than the federal minimum wage (in states where the minimum wage is higher than the required federal minimum wage, the higher wage prevails). There are exemptions from the law for executive, administrative, professional and computer employees.

Many employers make a clear distinction when hiring staff whether their position is classified in their compensation system as exempt or non-exempt. In order to determine exemption status, employers must administer three tests to a position:

1. Salary Level Test
2. Salary Basis Test
3. Duties Test

1. Salary Test

To qualify for exemption under the salary test, the Department of Labor predetermined minimum weekly earnings must be met. To determine the minimum salary requirements, the Department of Labor website should be referenced as minimum can be changed due to the passing of new laws and executive orders. This salary threshold requirement does not apply to outside sales employees, teachers and employees practicing law or medicine.

2. Salary Basis Test

The second test, salary basis test, refers to whether an employee has a guaranteed minimum amount of money s/he receives for any work week in which any work is performed. A typical rule of thumb for the salary basis test is ensuring that an employee’s annual salary is equally divided and paid within company pay periods regardless of workload as opposed to pay increasing/decreasing based on the number of hours worked in a week.

3. Duties Test

The third and final test to determine exemption from overtime under FLSA is the duties test. Employees must perform exempt level job duties in addition to meeting the salary level and salary basis tests. The FLSA exemptions are generally limited to employees who perform relatively high-level and independent work. Often this work is intellectual, requires specialized education, involves exercising discretion and judgment and is directly related to management or general business operations of the employer or the employer’s clients/customers.

Who Is Exempt?

Recall that FLSA assumes employees are non-exempt and thus applicable for overtime unless an employer can meet the above three criteria to prove exemption. The ability to meet these exemptions typically places employees in one of four categories: Executive, Administrative, Professional or Computer employees.

• Executive employees must management an enterprise, department of division to qualify for exemption. They must also regularly direct the work of at least two or more employees and have hiring and firing authority.
• Administrative employees must conduct office or non-manual work that is directly related to management policies and/or business operations. These individuals must exercise high levels of discretion and independent judgement.
• Professional employees primary duties typically required advanced knowledge in a field of science of learning typically associated with prolonged courses of study. Occupations with recognized professional status include, but are not limited to: law, theology, medicine, accounting, teaching, biological and chemical science or those who hold valid licensure permitting the practice of medicine.
• Computer employees must have primary duties that consist of the application of system techniques, designing and developing computer programs, or creating and testing operating systems.

Know Your Rights

Rights of Exempt Employees

Under the FLSA overtime rules, exempt employees do not have any rights. An exempt employee is entitled to receive the full amount of the salary or base pay in any work period where s/he performs work. There is no clause in the FLSA that limits the amount of work an employer may require from an employee.

Rights of Non-Exempt Employees

Nonexempt employees are entitled to overtime pay at one and half times their regularly hourly rate for hours worked over 40 per week under FLSA. Much like rights of exempt employees, nothing in FLSA requires a schedule of work. Employers may adjust schedules to prevent employees from working FLSA overtime. Typically, lunch breaks are not counted as paid time thus not counted towards the calculation of overtime.

Travel time must be counted as overtime if it is spent traveling from one work site to another or it is a requirement of the employer.

The differences between exempt and non-exempt employees can be a source of confusion for both employees and employers. In the end, it is not up to the employee to determine his/her FLSA status. Company compensation programs should have developed designated exempt positions and communicated them to management and employees.

The best way to easily determine your FLSA status is by reviewing your hiring materials. Offer letters or employment contracts should clearly state a position’s status. If you’re still unsure, speak with your manager or HR department for clarification. It’s impossible to know your rights under FLSA until you know your status.