Employees must be classified as either exempt or non-exempt from the Fair Labor Standards Act of 1938 (FLSA). The FLSA governs how employees are compensated for their work.
The most important difference between FLSA exempt and FLSA non-exempt employees is that non-exempt employees must be paid overtime if they work more than 40 hours per week. In addition, FLSA non-exempt employees must be paid at least the federal minimum wage.
Key Differences Between Exempt vs. Non-exempt Employees
There are a few important differences between FLSA exempt and non-exempt employees.
FLSA non-exempt employees must receive overtime pay if they work more than 40 hours per week. Overtime pay must be no less than one and half times their normal hourly wage. It may be more at employers’ discretion.
FLSA exempt employees are not required to receive overtime pay. Most FLSA exempt employees are salaried employees and are paid the same amount regardless of whether they work 30 hours in a week or 50 hours.
FLSA non-exempt employees must be paid at least the federal minimum wage of $7.25 per hour. Many states have their own minimum wage laws that require greater pay for FLSA non-exempt employees.
To qualify as FLSA exempt, employees must be paid at least $684 per week or $35,568 per year. Employees who make less than this amount are non-exempt under the FLSA. (Note that this is only one requirement of several for an employee to be exempted from the FLSA.)
How to Classify Employees as Exempt vs. Non-exempt
Any employee can be classified as non-exempt for any reason. However, employees must pass three tests in order to be classified as FLSA exempt. If an employee passes these tests, it is often in the interest of employers to classify them as FLSA exempt. Exempt employees do not need to be paid overtime, which can save a company money.
It’s important that classifying an employee as FLSA exempt is done correctly. Misclassification of non-exempt employees as FLSA exempt can result in significant penalties from the US Department of Labor.
Here are the three tests that an employee must pass in order to be exempted from the FLSA.
Test #1: The salary level test
FLSA exempt employees must be paid at least $684 per week or $35,568 per year. This minimum salary level is set by the US Department of Labor and may change from year to year. If an employee makes less than this amount, they are not exempt from the FLSA.
Test #2: The salary basis test
FLSA employees must be guaranteed to earn a specific amount each week regardless of how many hours they work. This is the case for salaried employees, who earn the same each week regardless of whether they work 30 hours or 50 hours.
If an employee’s pay varies based on how many hours they work—as is the case for most hourly employees—then they must be classified as FLSA non-exempt.
Test #3: The duties test
The FLSA includes three types of employees that may be exempted from this law: executive, professional, and administrative. This is known as the FLSA duties test.
Executive employees are those that regularly supervise at least two other employees, play a role in the hiring and firing of employees, and have management as part of their primary duties.
Professional employees are those whose job duties require advanced knowledge or skills, and typically do not involve manual labor. Professional employees may include computer workers, engineers, creative workers, and medical professionals.
Administrative employees are those whose job duties involve non-manual office work directly related to business operations.
If an employee falls into one of these three categories of job duties, they may be classified as FLSA exempt. Otherwise, they must be classified as FLSA non-exempt.
Examples of Classifying Employees as Exempt vs. Non-exempt
Let’s take a look at a few examples of employees and whether they should be classified as exempt or non-exempt from the FLSA.
Example #1: A salaried engineer
Say an employee receives a salary of $80,000 per year and is employed as an engineer. In this case, the employee could be classified as FLSA exempt because they meet the minimum salary requirement, are paid a salary rather than an hourly wage, and can be categorized as a professional employee.
Example #2: An hourly building inspector
Say a building inspector is paid an hourly wage of $25. This employee passes the salary level test and the duties test, but not the salary basis test. Since they are paid hourly, their compensation varies with the number of hours they work each week. So, they must be classified as FLSA non-exempt.
Example #3: A part-time salaried secretary
Say a secretary works an estimated 15 hours per week. They earn a weekly salary of $600 even if they work less than 15 hours some weeks. Since the employee’s salary is less than the required $684 per week, they must be classified as FLSA non-exempt.
FLSA non-exempt employees must be paid overtime, while FLSA exempt employees do not need to receive overtime and are usually salaried. All employees can be classified as non-exempt from the FLSA, but not all employees can be classified as FLSA exempt. To classify an employee as FLSA exempt, they must pass the salary level test, the salary basis test, and the duties test.
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