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 (FLSA) that determine whether these employees must be paid 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 employees, you need to consider their salary, the consistency of their pay and hours, and the particular tasks they perform.
3 Exempt vs Non-exempt Tests for Classification
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.
Salary Level Test
Employees who are paid more than $684 per week or $35,568 per year pass the salary level test to be classified as exempt and ineligible for overtime pay. In contrast, employees who make less than this are considered non-exempt and are eligible for overtime pay.
Although the Biden administration was unable to get the federal minimum wage increased to $15 per hour, many states are pushing to increase the minimum wage within their individual states. There are also a few states that, as of January 2022, have already increased the minimum salary threshold for exempt employees (above that set by federal rules). The law states that employers must follow the law that is most protective to employees. Some states that will overrule the federal laws in place include:
- California – The minimum salary level for exempt employees in California is $58,240 (for employers with fewer than 25 employees) and $62,400 (for employers with greater than 25 employees).
- Colorado – Exempt employees in Colorado must make a salary minimum of $45,000 (or $865.38 per week) to meet the salary level test.
- Maine – The minimum salary level for exempt employees in Maine is $38,250 (or $735.59 per week).
- New York – To qualify for exempt status in New York, employees must make a minimum salary of $51,480 (or $990 per week). NOTE: In the following areas, exempt employees must make a minimum salary of $58,500—Nassau County, Suffolk County, Westchester County, and within New York City.
- Washington – Exempt employees in the state of Washington must make a minimum salary of $52,743.60 (or $1,014.30 per week).
We recommend that you check the minimum wage and salary requirements for exempt employees in your state.
Salary Basis Test
As long as your employee is paid consistently the same amount with very small variance, they would pass the salary basis test and be considered exempt since this would make them salaried (interpreted as such by the government). However, if an employee is paid hourly with pay that varies widely based on their work schedule and the hours provided, then they are to be classified as non-exempt.
Take note that there are exceptions, such as farmworkers and outside salespeople, whose jobs may be considered exempt even when they are paid hourly.
An employee who meets the salary level and salary basis tests are exempt only if they also perform exempt job duties considered to be executive, professional, or administrative. This is also referred to as a White Collar Exemption.
Keep in mind that job titles and job descriptions alone can’t determine whether this test is met. It is the actual job tasks that matter. For example, if you give someone the job title “Director of Facilities Operations,” but they are functioning as the janitor, doing maintenance and cleaning floors, this rule would require you to classify that employee as non-exempt. This test was put in place to prevent companies from circumventing overtime rules with inflated job titles.
Some examples of such job duties include:
- Executive: Requires that a person in the job role supervises two or more full-time employees. Management of employees is the primary task of the job, and the person in the job provides input on decisions affecting those team members—like hiring, firing, job promotions, or work assignments. Often, this includes people managers and sometimes supervisors.
- Professional: Includes jobs in “learned” and “creative” professions like doctors, lawyers, graphic designers, and engineers. These professional roles are generally considered to be exempt. Professional applies to those jobs that require an advanced degree past high school.
- Administrative: Jobs done while working on business support teams, like marketing, operations, accounting, or human resources, are considered administrative. These functions keep the business running and are often provided by office staff members providing support to the business.
Federal law requires that you classify employees as exempt vs non-exempt correctly upon hire. 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.
To help avoid 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 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.
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.