How to Differentiate Between Exempt vs Non-exempt Employees?

Exempt vs non-exempt employees, what’s the difference? The terminology might be new to you but to get a complete understanding of the workforce and the different regulations surrounding any role you take up, knowing how to determine exempt vs non-exempt employees is essential for a comprehensive understanding of the role that is being offered. The distinction is just as critical for employers as placing an employee in the wrong category can lead to legal troubles.

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Exempt vs. Non-exempt Employees—What is the Difference?

The Fair Labor Standards Act (FLSA) and local state laws provide different accommodations for different sections of the workforce but they cannot make laws that change from individual to individual. This makes the creation of categories necessary for any regulation to be successfully enforced, but the distinction is not always obvious. 

There is a common misconception that the only distinction when it comes to exempt vs non-exempt is the method of payment, but that does not communicate the full picture of what sets the two groups apart.

What is a Non-exempt Employee?

The FLSA provides us with the most clarity on what the distinction is as their regulations set the standard for federal minimum wage when it comes to paying these employees. Employees who are nonexempt are entitled to be paid the minimum wages at the least and they can also claim overtime pay for any work that goes beyond their contracted hours. Non-exempt employees are essentially “not exempted” from the FLSA regulation. 

The minimum wage can vary every year so employers who hire non-exempt workers need to keep an eye on the minimum wage rates and adjust their own provisions accordingly. Even if their wages do exceed the minimum threshold, they usually do not meet the FLSA criteria for becoming an exempt employee. The workers who fall within these categories are owed overtime pay that is one and one-half times their regular pay for every hour that goes above the 40-hour period in their workweek. 

These workers traditionally receive hourly wages for work done rather than a steady salary periodically. Electricians, cashiers, clerics, receptionists, and carpenters, are some of the roles that may be categorized as non-exempt employees. 

What is an Exempt Employee?

An exempt employee is exempted from the laws on minimum wages and overtime pay and enjoys a salaried role at the organization that includes higher levels of responsibilities. These white-collar roles traditionally fall under the categories of executive, administrative, or professional roles. There are also computer roles and outside sales employees who fall under these exemptions. These roles often require a higher degree of expertise and are backed by a formal degree in the relevant field. 

Exempt employees are paid above a certain level—the marker or threshold for which changes regularly—and this prevents them from being included under FLSA’s guidelines for non-exempt employees. As of July 1, 2024, employees have to earn more than $844 USD per week or $43,888 per year to be classified as exempt employees. This threshold will go up on January 1, 2025, to $1,128 USD per week to $58,656 USD per year. Employees who earn lower than this are categorized as non-exempt employees. Highly compensated employees are also categorized separately and have their own threshold for pay.  

There is no guarantee of overtime pay for such employees but some employers do offer additional benefits to supplement any extra hours worked. Engineers, doctors, lawyers, architects, programmers, and even CEOs are considered exempt employees. 

How to Classify Exempt vs Non-exempt Employees?

Exempt vs non-exempt employees, by definition, are quite different in terms of their roles and pay. They enjoy different protections and are regulated differently by the FLSA, which further determines their interaction with their employer. If you want to classify exempt vs non-exempt employees, there are three different categories to remember.

Salary and Overtime

Non-exempt workers are required to be paid the minimum wage according to the FLSA and they are also owed overtime pay above 40 hours of work. These workers are paid an hourly wage but some of them may be paid a salary or commission wage as well. Exempt workers commonly receive a salary that falls above the specified margin and they are not eligible for overtime pay. The pay also remains constant regardless of fluctuations in their work or work hours.

Job Roles

Non-exempt employees are traditionally tradesmen and retail workers or they provide support services to the organization such as accounting clerks and bookkeepers. Exempt employees perform executive, administrative, professional, and computer-related functions or are categorized as highly compensated employees.

Benefits

Employers can opt to offer the same benefits to their exempt and nonexempt employees but the latter are more protected from violations. Both groups have to pay taxes according to their income levels so exempt employees do not have any special tax benefits or restrictions.

Exempt vs non-exempt, understanding this criterion can make your position within the workplace more clear to you, and as a result, it can also make it easier to ask for the compensation you are owed. The difference between exempt and non-exempt comes down to salary and role and while the benefits do not drastically change, the wages and protections you can expect differ between the two types of roles. 

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