Exempt vs Non-Exempt Employee: Definitions, Differences & How to Determine
Charlette has over 10 years of experience in accounting and finance and 2 years of partnering with HR leaders on freelance projects. She uses this extensive experience to answer your questions about payroll.
Jennifer Hartman is an HR Specialist and staff writer for Fit Small Business, with over 15 years of experience in accounting, payroll, and human resources.
This article is part of a larger series on Hiring.
Exempt and non-exempt employees are worker classifications established by the Fair Labor Standards Act that determine if you must pay an employee overtime pay.
- Exempt employee: An employee who, based on job duties and salary, is “exempt” from receiving overtime pay.
- Non-exempt employee: An employee who, based on job duties and salary, will receive overtime pay as required by federal and state law. (Overtime pay in most states is 1.5 times the hourly rate whenever the employee works over 40 hours in a workweek.)
When determining exempt vs non-exempt, you need to consider three tests: salary level (with $684 per week the dividing line), salary basis (consistency of pay and hours), and duties (job tasks). For example, an hourly worker doing mostly entry-level tasks is generally considered non-exempt and eligible for overtime pay, whereas salaried managers overseeing the work of others are exempt and not eligible for overtime.
Comparing Exempt vs Non-Exempt Employees
Understanding the differences between exempt and non-exempt is important for your business. Misclassification of your employees and failure to pay them earned overtime pay may subject you to penalties (up to $10,000 in fines or incarceration) and backpay (often double the hourly rate) to all misclassified employees for all overtime hours worked for up to three years. That’s not to mention hundreds of dollars an hour for consulting and documentation prep and damage to your brand reputation.
It’s unwise to risk financial and reputational ruin by taking a do-it-yourself approach to employee job classification. For significantly less than the cost of just one violation, you can often work with an HR consulting firm like Bambee, or partner with an online legal service. Consider it a cost-saving, risk avoidance business investment in labor law compliance.
3 Tests to Determine Exempt vs Non-Exempt Employee Status
To be considered exempt from overtime, according to the Fair Labor Standards Act (FLSA), an employee must pass three tests—Salary Level, Salary Basis, and Duties. All three of these tests must be met for an employee to be exempt from overtime pay unless exclusions apply.
- Salary Level Test: An employee must be paid a minimum of $35,568 per year to be considered exempt.
- Salary Basis Test: The employee must be paid a consistent salary based on a standard work schedule.
- Duties Test: The employee’s job duties must be executive, administrative, or professional.
If the answer to all three of these is yes, then the job is likely considered exempt, and overtime pay will not be required.
Federal law requires that you classify employees as exempt vs non-exempt correctly upon hire. To help with this, Bambee offers affordable, on-demand HR managers to ensure small businesses stay compliant with employment classifications and other labor laws. You also get help with creating job descriptions, internal HR policies, employee onboarding, termination, and general employer coaching and HR guidance starting just at $99 per month.
Exclusions to Exempt vs Non-Exempt Employee Classification
Unlike most federal and state labor laws, with employment law, there are many job types with exceptions. Current professions that are exempt regardless of the three tests are:
- Agricultural employees
- Union roles
- Railroad workers
- Learned professions (such as clergy, RNs, and engineers)
- Creative professionals (such as actors and writers)
- Commission-based sales roles
- Highly compensated employees ($107,432+ a year)
- Computer professionals
- Automobile dealership sales and parts workers
- Drivers, loaders, and mechanics
- Seasonal and recreational employees
For more detail on these exceptions, see our article on exemptions from minimum wage and overtime rules.
Bottom Line
When it comes to exempt vs non-exempt employee job classifications, it is crucial to ensure you’re paying your workers fairly and abiding by federal labor laws. Before classifying a job as exempt from overtime, it’s best to have solid job descriptions in place documenting the kinds of tasks the worker does.
