Understanding the difference between exempt and non-exempt employees can keep you out of trouble, compliant with tax rules, and makes you a better employer. Let’s explore the ins and outs of exempt and non-exempt employees.
When it comes to business, there are some things, complicated or not, that companies need to make sure they get right, or they could get themselves in trouble or be doing themselves a disservice.
One example of this is simply knowing what is the difference between exempt and non-exempt employees.
It may not seem like there is a big difference between the two on the surface, but when tax season comes around, your business will feel it.
What is the difference between exempt and non-exempt employees? There is both a simple answer and a more complex answer. For those companies who need the more complex answer, let’s explore exempt vs non-exempt employees in more detail.
Why You Should Understand Exempt vs Non-Exempt Employee
For starters, employers must recognize why they need to know if an employee is exempt or non-exempt.
If you misclassify your employees, there could be penalties not only from local regulations but federal punishment via the Fair Labor Standards Act (FLSA).
It’s possible to receive a fine or face other penalties. If you’ve been incorrectly classifying your employees, there’s also a chance that you’ll eventually have to pay them back wages, which will cost you more money and disrupt your budget. This is why employers need to understand the difference between exempt and non-exempt employees and know how to keep up with changing laws so that every employee is classified appropriately.
Basic Definitions Of Exempt VS Non-Exempt Employees
The most fundamental difference between exempt and non-exempt employees is that exempt employees do not have to be paid for working overtime, while non-exempt workers must be paid for their overtime.
Every employee is classified as either one or the other based on the type of work they do, their specific job duties, and how much money they earn.
However, certain states will have additional criteria to determine exempt or non-exempt status.
For the most part, exempt employees are executives or upper-level positions within a corporation – this can also include employees who perform outside sales and other administrative roles that fall under the FLSA guidelines for an exempt employee.
- These employees don’t have a predetermined number of hours that they work during a pay period.
- That means they could work more than 40 hours in a week without having to be paid overtime by their employer.
In other words, these employees must fulfill their job requirements regardless of whether or not it takes them 40 hours or more in a given week to complete them.
On the contrary, non-exempt must be paid for the hours they work, including any overtime hours beyond 40 hours a week. Once a non-exempt employee surpasses 40 hours a week, they must receive 1.5 times their hourly wage.
Of course, there could also be other state and local laws to consider to determine if employees are eligible to work overtime or can be forced to work more than 40 hours a week.
It should be assumed that all employees fall under the category of non-exempt unless their employer can prove that their job duties fall under the category of executive, administrative, or one of the other definitions of an exempt employee.
Job Function Differences
As mentioned, the biggest factor in determining exempt vs non-exempt is the job duties of the particular employee.
Obviously, it’s the interest of the employer to have an employee qualify as exempt so that they don’t have to pay for overtime if that person’s job duties force them to work more than 40 hours in a week.
But FLSA has specific guidelines for what job duties and conditions will qualify as exempt.
- First, to qualify for an executive exemption, the employee must make a minimum of $684 per week, which translates to over $35,000 over 52 weeks. Just for good measure, this translates to $17.10 per hour in a 40-hour workweek.
- Second, this person’s duties must consist of managing the enterprise or a department of the enterprise. Next, they must supervise or direct at least two other full-time employees. Next, an exempt employee must have the power to hire or fire employees or at least have significant influence in those types of decisions.
In addition to the executive exemption, there is also an administrative exemption, learned professional exemption, creative professional, outside sales exemption, and computer employee exemption that are similar in their requirements to the executive exemption.
These exemptions have the same minimum salary requirements as the executive exemption. There are also strict guidelines regarding the job duties and advanced knowledge of the employees who can be considered exempt.
One of the biggest misconceptions when it comes to exempt vs non-exempt employees is that it’s all about the salary workers earn or whether they get paid a salary or an hourly wage. However, the method of compensation is not definitive by any stretch.
The job that the employee is performing is far more important. FLSA guidelines make it clear that exemptions are not given to police, firefighters, and other first responders. This includes state troopers, parole officers, park rangers, prison guards, and virtually anybody involved in the criminal justice system who interacts with suspected criminals in any way.
FLSA guidelines also make special mention of “blue-collar” manual laborers who will never qualify as exempt employees. This includes electricians, plumbers, construction workers, longshoremen, carpenters, and similar professions that involve physical skills and working with one’s hands.
FAQ On The Difference Between Exempt vs Non-Exempt Employee
What happens if a business shuts down?
During the COVID-19 pandemic, there were questions about the difference between exempt and non-exempt employees if a business has to temporarily shut down or change the way it functions. With non-exempt employees, the procedure is simple; they only get paid for the hours that they work.
However, if non-exempt employees are working remotely, their hours should be recorded, and they should be paid for those hours, including overtime.
However, it’s a little different with exempt employees. If an exempt employee performed any type of work, whether it be remote or not, in a given week, they are entitled to their full salary for that week. Even if they didn’t come close to working 40 hours, they receive their full salary for that week. But if they didn’t work at all, the employer isn’t required to pay them.
Can an employee’s status change?
Yes, if an employee stays with the same employer but has a change in their job, it’s possible that they could change from exempt to non-exempt or vice versa. This could be due to a change in their wages or their job description. It’s not uncommon for a person to go from being an hourly worker to being an executive with the types of responsibilities that would then make them an exempt employee.
Does exempt vs non-exempt matter for taxes?
When employees file their taxes, there should be no difference in what they do regardless of whether they’re exempt or non-exempt employees. There is no special tax status for an exempt employee or any meaningful benefits for tax purposes.
How does exempt vs non-exempt impact employee suspensions?
There is nothing in FLSA that prevents either an exempt or non-exempt from being suspended without pay if they violated a company’s rules and regulations. Keep in mind that non-exempt employees will only be paid for the hours that they work.
Therefore, if a non-exempt employee is suspended, they won’t be paid because they aren’t working. It’s the same situation with exempt employees. If they’ve been suspended for an indefinite period of time, they won’t be paid if they haven’t been asked to perform any work in a given week.
A Digital Solution For All Your Time Tracking Needs
The best decision you can make for your employees and your business is to use a digital time tracking solution!
Why? What are the benefits?
- Record the hours, down to the exact minute and second, that an employee clocked in and out. Nothing is approximate so there’s no possibility for time theft
- Ensure your employees are clocking in from the correct location with a unique geostamp via the geofence feature
- The live view shows you who clocked in and out so you know who showed up on time, who’s running late, or if someone is a no-show. (This makes it easier to have an accurate payroll balance in real-time)
- Remove friction from the payroll process with multiple export options
- Via the dashboard, you have direct insights on how an employee’s time is spent, see time that can be optimized, and see time worked per job, customer, and more
- Powerful advanced settings so you can ensure nothing falls between the cracks (features like reminders and auto-reports)
- From the app or desktop, you can approve or reject an employee’s timeoff request
Now, those are just some of the most powerful benefits and values of implementing the Connecteam time clock app! Plus, everything is accurately recorded on the app so you can easily avoid “human” error that comes with manual time tracking, misunderstandings, and payroll errors.
(Not to mention that the app is easy to use, no training is needed and the customer service team is super responsive!)
Wrapping Up The Difference Between Exempt vs Non-Exempt Employee
By now, it’s clear how important it is to know the difference between exempt vs non-exempt employees.
First, it can save you a ton of money when employees are classified accurately. (Although that should be more than enough!) Two, it keeps you compliant with state and federal laws. And three, it keeps employees happy too.