Why is exempt and non-exempt classification important to your business?

Exempt or Non-exempt Classification
Why it's important to your business.

AUG 25, 2021

Question:

What’s the difference between an exempt and non-exempt employee?

Exempt and non-exempt are classifications under the Fair Labor Standards Act (FLSA). That’s the federal law requiring that most employees receive at least minimum wage for each hour worked and overtime pay for hours worked over 40 in a workweek. Usually, employees who are entitled to both minimum wage and overtime are called non-exempt. Those who are not entitled to both are called exempt. 

Any position can be non-exempt, meaning that employees in that position are entitled to both minimum wage and overtime pay. But if you would like to classify a position as exempt, it would need to qualify for one of the exemptions listed in the FLSA. 

The most commonly used exemptions, particularly in office settings, are the executive, administrative, and learned professional exemptions. These are part of a group of exemptions often referred to as “white-collar exemptions.” Employees who are properly classified this way are not entitled to minimum wage or overtime. But, to qualify, each position must pass a three-part test:

• Duties: The employee must perform specific tasks (such as managing at least two people) and regularly use their independent judgment and discretion. Each exemption has its own duties test.
• Salary level: The employee must make at least $684 per week (under federal law, a few states have higher minimums)
• Salary basis: The employee must be paid the same each week regardless of hours worked or the quantity or quality of their work, with a few limited exceptions. 

If a position meets all the criteria under one or more of the white-collar exemptions, the employee may be properly classified as exempt and will not be entitled to minimum wage or overtime pay. If the position does not meet all the criteria under a specific exemption, the employee must be classified as non-exempt and paid at least minimum wage and overtime when applicable. 

Eric has extensive experience in HR, leadership, and training. He has held several senior HR positions, including as the HR & Operations Manager for an award-winning interactive marketing agency and as HR Director for a national law firm. Eric graduated with a Bachelor of Science in Economics from the University of Oregon.