When managing staff, you may come across discussions about exempt vs non-exempt employees. It is very important to understand the differences because there are a lot of scheduling, payroll, and tax implications. In this post, we define exempt vs. non-exempt and explain how it can affect your business.
What does exempt vs non-exempt mean?
When people talk about exempt vs non-exempt, they are referring to the Fair Labor Standards Act (FLSA). This is a federal law that covers what sorts of benefits employees are eligible for. If an employee is exempt, the regulations from the Fair Labor Standards Act do not apply to them. When a person is non-exempt, their employer must follow the guidelines set out by federal law.
There are several different workplace standards affected by an employee’s exempt status. One of the most important things is overtime. According to the Department of Labor, non-exempt employees get overtime pay, which is 1.5 times their regular pay, whenever they work more than 40 hours in a week. Exempt employees are not eligible for overtime pay.
Hourly minimum wage is another thing that does not apply to exempt employees. There are still minimum wages in place for exempt employees, but these are calculated on a weekly basis. Depending on how long an exempt employee is working, it is possible for their hourly wage to be less than the minimum wage for a non-exempt employee. Due to the higher cost of overtime, a non-exempt worker may end up making quite a lot during a long workweek.
State guidelines for exempt vs non-exempt employees
Keep in mind that exemptions can happen on both a federal and a state level. In addition to the standard FLSA regulations, states also have the option of enacting local standards. Some states may have higher minimum wage requirements that can affect what counts as exempt. For example, in California, a worker has to be paid twice the minimum wage to count as exempt.
It is essential for companies to be up to date on local guidelines. These can change frequently, and they may affect an employee’s exemption status. Even when a company meets federal laws about exempt status, they may potentially be in violation of state laws. Not paying enough money, not providing overtime, or misclassifying employees can lead to all sorts of fines and other punishments.
Is it better for employees to be classified as exempt?
There are all sorts of pros and cons to being exempt. From an employee’s perspective, non-exempt status tends to give them more compensation for long hours and more protection under labor laws. However, some employees may desire to be exempt since they get more leeway with hours worked. Furthermore, exempt jobs are often associated with higher pay and more benefits, making them more desirable.
Typically, most employers find it easier to handle exempt employees. When you are hiring exempt employees, you do not have to pay strict attention to FLSA guidelines. Furthermore, you can often get employees who work long hours without requiring pricier overtime pay. However, keep in mind that that convenience comes at a price. When you have a lot of exempt workers, you end up still needing to reimburse them in other ways. Exempt workers often expect additional benefits like health care and paid time off. Therefore, this can end up costing more, even when you factor in the lack of overtime pay.
How to tell if an employee is classified as exempt
An employer cannot just avoid overtime pay by deciding an employee is exempt. There are specific guidelines for what types of employees qualify for exemption. Generally, white-collar employees are often exempt while blue-collar employees are not. However, in reality, things are a little more complex. Some office employees might actually be non-exempt while certain laborers may be exempt.
What are exempt employees?
An exempt employee is a person who is paid a fixed salary instead of an hourly wage. Depending on where they live, this annual salary must meet a certain requirement for minimum wage. An exempt employee’s salary cannot be contingent on how many hours they work or how much work they do.
In addition to salary requirements, employees are exempt from federal overtime laws based on job duties. When an employee is in a position where they have to use independent judgement and discretion for job duties, they are typically exempt. According to the FLSA, any executive, administrative, sales, or professional job may be exempt.
Some common examples of exempt employees may include:
- Computer programmers
- Human resources workers
What are non-exempt employees?
Just about any job that does not meet the federal exemption requirements will be a non-exempt job. Therefore, the number of non-exempt jobs far outweighs the number of exempt jobs. The simplest definition of a non-exempt employee is someone who is paid an hourly wage. Non-exempt employees are typically paid less than exempt employees. However, there is no maximum wage requirement, so salary level does not affect non-exempt status.
In addition to being paid an hourly wage, non-exempt jobs are often lower-level jobs. A non-exempt employee is not expected to work independently. Instead, they will have a manager who instructs them in their duties. Non-exempt employees may have a strict schedule that requires them to clock in and clock out at specific times.
Some common examples of non-exempt employees may include:
- Retail workers
- Customer service representatives
- Clerical employees
- Food service workers
- Maintenance workers
Why exempt status matters
It is very important for any business to pay close attention to exempt status. Accidentally classifying your employees incorrectly can lead to sanctions, fines, and other consequences. If you want to avoid any issues with scheduling and payroll, you need to clearly identify exempt vs non-exempt workers while handling scheduling.
For non-exempt workers, you need to keep close track of hours in a workweek. To avoid paying excess overtime, you often need to schedule non-exempt workers thoughtfully. If you want workers to be classified as exempt, you need to pay close attention to the types of duties you assign and the types of benefits you provide. To maintain exemption status, you typically need to make sure you are paying the correct salary and assigning the right sorts of tasks.
How TimeForge can help
With TimeForge’s labor management software, it is easy to monitor your employees’ exempt status. With labor determinant predictions and real time workforce optimization, you can create great staff schedules that improve your bottom line and save you money. Using TimeForge, it’s easy to calculate labor costs for salaried staff as well as wage-based staff. In addition, TimeForge allows you to turn on or off attendance tracking for exempt workers.
If you would like to learn more about how our services can help you, call (866) 684-7191 or email [email protected].