In any organization, employees are usually classified into exempt and non-exempt. There is a considerable difference between the two, not so much in terms of work scope, but a lot when it comes to claiming employee benefits. To put it in simple terms, the difference between an exempt employee and a non-exempt one is whether or not a person is eligible for overtime pay.
In this complete guide, we will talk about what is an exempt employee, who is a non-exempt one, exempt vs non-exempt employee, and much more.
Who is an Exempt Employee?
The first question to ask while figuring out the difference between an exempt employee and a non-exempt employee, is this; what does being an exempt employee mean?
These are the ones who are not entitled to receive overtime pay as per the Fair Labor Standards Act or FLSA. As per the requirements of FLSA, every employer is required to pay minimum wages if the employee works a 40-hour workweek unless the latter falls under the category of an exempt employee. While this is a federal act with certain rules and regulations laid out with respect to overtime pay, it has to be noted that separate states also have their own wage laws in place. For the organizations in such states, both the FLSA laws and state wage laws are followed.
Basically, these are the ones who receive a salary for the work performed and are not eligible for any minimum pay or even overtime pay.
There are three basic things that make an employee exempt:
- An exempt employee gets a fixed salary
- They must be getting a salary that is equal to or more than the salary limit set by FLSA
- To earn the said salary, these employees must complete the job requirements stated
We can further categorize an exempt employee:
An executive-level employee who usually supervises at least two or more full-time employees or four or more full-time employees on a regular basis. They are also the ones who are in charge of at least one part of the business of the organization and are also involved in the hiring process, to some extent.
An administrative employee is one who is directly involved in the management of the organization and is responsible for taking important business decisions, without being answerable to another person for their acts.
Now, these are a little different from the two aforementioned categories. Professional exempt employees are those who are trained or specialized in certain areas and either have a professional degree in the field or enough experience, talent, and creativity to perform their job duties.
This is a simple one. If you have employed employees in a computer-related or an IT role, they are qualified under this category.
This category includes employees who meet the minimum threshold of FLSA’s minimum designated salary for highly compensated employees. They have non-manual job responsibilities and oversee at least one executive, professional, or administrative level employee.
Outside Sales Exemption
These are those exempt employees whose main responsibility is to procure outside contracts or make sales. Basically, their job happens outside the organization’s four walls, even though their responsibilities and accountability is towards the company.
What are the Overtime Payment Guidelines as Per the 2020 Change in FLSA?
It is to be noted that the aforementioned categories come under the definition of an exempt employee now after FLSA has been amended. This change is brought into effect since January 1, 2020, and states that the following will be considered exempt employees, going forth:
- Administrative employees
- Professional employees
- Science, engineering, technology, maths employees
Further, the aforementioned should qualify the following three conditions:
- Employers pay them a salary for their work
- These employees earn at least $684 every week
- Employers DO NOT pay these employees on an hourly basis (have a fixed salary as mentioned above)
If any employee falls in the above-mentioned categories and fulfills the conditions, they will not be eligible for overtime as per FLSA.
An exempt employee, in essentials, is an employee of the company with fixed responsibilities and compensation, across designations.
Now, let’s talk about a non-exempt employee.
Who is a Non-exempt Employee?
A non-exempt employee is the opposite of an exempt employee. These employees receive overtime pay as per the laws of the Fair Labor Standards Act. Not just the FLSA status, such employees also need to check their respective state’s laws with respect to non-exemptions.
Usually, as per the law, if the number of working hours exceed 40 in a week, employers have to pay time and a half. This time and a half is over and above the minimum federal wage that the organization has to pay to a non-exempt employee for the number of hours worked.
Examples to Cite the Difference between Exempt and Non-exempt Employees
The basic difference between an exempt employee and a non-exempt employee is while the former is not eligible for flex time or overtime, the latter is. Apart from that, here are a few examples to further explain the concept of an exempt vs non-exempt employee.
- Examples of exempt executives: CEO, Supervisor, Manager
- Some examples of exempt administrative employees: Human Resource, Accounts, Legal, Public Relations
- Some examples of exempt professional/creative employees: Chartered Accountants, Doctors, Lawyers, Writers, Musicians
- Examples of exempt sales/outside employees: Salesperson, Marketer
- Some examples of computer-related job employees: Software Engineers, System Analysts
On the other hand, here are examples of a non-exempt employee: Freelancers, Interns, Retail Associates, Contractors.
What are the Pros and Cons of Hiring an Exempt Employee?
To understand the difference, it is also important to understand the benefits and drawbacks of hiring both. Apart from having complete information, both legal and otherwise, knowing the pros and cons further helps in hiring decisions for different roles.
Here are the pros:
- The major benefit is that you can ask the employees to fulfill certain job responsibilities for fixed pay, and they are accountable for the same
- Exempt employees’ salaries are fixed costs to the company
- For the employees, it serves as a stable source of income and a static career path
Here the cons:
- The major drawback of this system is from the perspective of the employee. An exempt employee does not enjoy the flexibility and benefits which a non-exempt one enjoys
- On the other hand, exempt employees often cost more to the organization than non-exempt ones. This is because they have to exercise certain authority and judgment in the way they do their jobs
What are the Pros and Cons of Hiring a Non-exempt Employee?
Here are the pros of hiring a non-exempt employee:
- Contrary to popular opinion, it is actually a non-exempt employee that offers flexibility to the organization as there are fixed rates for fixed hours and a certain level of quality and quantity of work
- As far as the employees are concerned, you pay them for the exact work that they do and even if they go a little overboard you pay them in the form of overtime pay
Here are the cons of hiring a non-exempt employee:
- Lack of consistency is a drawback that can hamper both employer and employee here
- Non-exempt employees do not come with the certainty and stability of exempt employees
The bottom line on exempt vs non-exempt employee
The main idea behind understanding the difference between exempt and non-exempt employees is knowing whom to pay overtime and whom to not. Exempt ones, provided they fulfill the criteria, are exempt from receiving overtime. On the other hand, the non-exempt ones are not. Exempt employees are the usual salaried employees while non-exempt employees come in the form of contractual workers and freelancers.
After understanding the concept and differences between employees who are exempt and non-exempt, it becomes easier for the organizations to hire the right employees for the right job. This not only saves up costs but ensures optimum productivity, in sync with the goals of the organization.
Here are the answers to some of the most common questions on exempt vs non-exempt employees:
Q. Is an exempt employee eligible for flex time and overtime?
A. Flextime is a concept which allows employees to choose their start and end time. Flextime and overtime, both are facilities for both the employees, exempt or non-exempt.
Q. Is there any special tax status for exempt employees?
A. No, there is no special tax status for them.
Q. Can you suspend an exempt employee without pay?
A. Unless the contract says otherwise, you can suspend them without pay, especially if they have defied any company rules and regulations.
Do you need to know about the exempt vs non-exempt employee debate?
Yes, for you to hire the right person for the right job and know what it will cost the organization and whether it is worth it, it is absolutely important that you understand the difference between the two.
Do you have exempt and non-exempt employees at work? How do you frame the pay contracts for them? Do let us know @HarmonizeHQ