Difference Between Exempt and Non-Exempt Employees

The Fair Labor Standards Act (FLSA) lays out the difference between exempt and non-exempt employees. However, while certainly useful at times, legal jargon can be difficult for the average American to comprehend fully.

In this article, we interpret the legalese associated with the FLSA regarding exempt and non-exempt employees, so you may better understand employer and employee rights and obligations under federal law.

Definitions: Fair Labor Standards Act, Exempt Employee and Non-Exempt Employee Definition

First, it is helpful to lay out a few basic definitions, both the legal and simplified versions. We will begin with legal definitions for reference. A simplified explanation will follow these in laymen’s terms.

Fair Labor Standards Act (FLSA) Definition

• Legal Definition: According to the U.S. Department of Labor, the FLSA “establishes minimum wage, overtime pay, record keeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments.” Also known as the “Garcia Act,” the full text of The Fair Labor Standards Act of 1938, as amended, can be found at 29 USC§§201, et seq.
• Laymen’s Terms: The FLSA is a U.S. federal law that’s meant to protect workers against unfair pay practices. The FLSA regulates certain employer policies toward the employee, such as a legal minimum hourly wage, overtime pay requirements and regulating child labor.

The FLSA was passed in 1938, but has seen many amendments over the years. It’s one of the most important laws for both employers and employees to understand. The FLSA sets out a range of regulations for how employers are allowed to deal with both salaried and hourly employees.

Additionally, the FLSA sets out three tests to determine the status of an employee:

1. The Salary Level Test
2. The Salary Basis Test
3. The Duties Test

In general, to be considered an exempt employee, the person in question must pass the three tests by:

4. Being paid at least $35,568 per year or $684 per week as of 2020 (Salary Level Test)
5. Being paid on a salary basis (Salary Basis Test)
6. Performing job duties defined as “exempt” (Duties Test)

Exempt Employee Definition

• Legal Definition: To be considered “exempt,” an employee must pass the three tests set out in the FLSA:
• First, the employee must pass the “Salary Level Test”. This means earning a minimum of $35,568 per year or $684 per week (2020).
• Second, they must pass the “Salary Basis Test”. This proves the employee has a “guaranteed minimum” amount of money s/he can rely on receiving for any work completed in any workweek in which any work is performed.
• Third, the “Duties Test” must also be passed. An employee is only exempt if they perform relatively high-level work. The three typical types of exempt job duties are Executive, Professional and Administrative. Each have their own test for admission to the group.
• Laymen’s Terms: An exempt employee is paid on a salary basis with a regular pay of at least $35,568 per year. This salary is not reduced if paid time off is taken by the employee. The exempt employee must also perform duties that are typically considered office “white collar”. This includes job duties that require specific skills, experience and/or education.

Additionally, exempt employees aren’t eligible for overtime pay or minimum wage. Their salary covers specific tasks rather than specific hours worked. It is acknowledged that the exempt employee may work varying hours each week, depending upon the task load.

Non-Exempt Employee Definition

• Legal Definition: According to Cornell Law School’s Legal Information Institute, “non-exempt employees are guaranteed an hourly wage and overtime pay under The Fair Labor Standards Act (FLSA). They must earn at least the Federal or State minimum wage for every hour worked and overtime pay for any amount of time exceeding 40 hours (non-exempt employees are entitled to time and one-half their ‘regular rate’ of pay for each hour they work over the overtime threshold). Any job that earns a minimum wage and is eligible for overtime is considered non-exempt…Even if non-exempt employees earn more than the Federal minimum wage, they still take direction from supervisors and do not have Administrative or Executive positions. The minimum salary threshold of the FLSA changes every year. For 2020, employees must earn a minimum of $684 per week or $35,568 per year to have exempt status. Employees who earn below this amount are designated non-exempt.”
• Laymen’s Terms: A non-exempt employee must be paid at least minimum wage — the higher of either the Federal minimum wage of $7.25 per hour or the State minimum wage — for every hour worked. A non-exempt employee must be paid overtime for any time worked beyond 40 hours in a workweek. Overtime is paid at 150% of their regular hourly rate.
• Any job that earns a minimum wage and is eligible for overtime is non-exempt.
• Anyone that earns more than $7.25 per hour, doesn’t have Administrative or Executive duties and takes direction from a supervisor is a non-exempt employee.
• Any employee who earns below the minimum required amount is considered a non-exempt employee — $684 per week or $35,568 per year in 2020.

FLSA salary requirements may change each year, so it’s best to be familiar with the current requirements.

The Importance of Understanding Your Employment Designation

You were probably told that you were either an exempt or non-exempt employee when you were hired. However, as you can see, the laws governing these employment designations are intricate and sometimes confusing.

If you are mistakenly told that you are an exempt employee, but do not fit the criteria, you may be eligible for overtime pay or minimum wage.

On the other hand, if you were mistakenly told you were a non-exempt employee, but passed the three tests associated with exempt employees, you may be eligible for additional benefits.

What is an Exempt Employee?

Now that we have a basic understanding of the definitions associated with exempt and non-exempt employees, let’s consider what an exempt employee looks like.

We know now that an exempt employee has passed the three FLSA tests:

7. Being paid at least $35,568 per year or $684 per week as of 2020 (Salary Level Test)
8. Being paid on a salary basis (Salary Basis Test)
9. Performing job duties defined as “exempt” (Duties Test)

But what kind of jobs are filled with exempt employees?

Examples of Exempt Employees

The exempt employee must perform a duty that is considered either Executive, Professional or Administrative. However, it’s important to remember that it’s not the job title, but the actual duties that determine an employee’s categorization. Here are some typical exempt job titles in each category:

Executive duties: CEOs and other chief officers, and managers and supervisors with decision-making roles

Professional duties: lawyers, engineers, doctors, architects, teachers and other roles requiring advanced formal education

Administrative duties: human resources, legal, compliance, public relations and accounting

What is a Non-Exempt Employee?

The easiest definition of a non-exempt employee is an employee who does not pass at least one of the exempt employee’s three FLSA tests.

We know what exempt employees look like, but what kind of roles do non-exempt employees fill?

Examples of Non-Exempt Employees

Non-exempt employees can fill many roles. Again, it’s important to remember that the employee is categorized based on their job duties rather than their job titles. Some typical examples of non-exempt roles include:

• Trade jobs, like plumbers, mechanics and electricians
• Contractors and freelancers
• Interns
• Temporary workers
• Service industry professionals in restaurants and retail

Frequently Asked Questions

Many people have additional questions regarding the differences between exempt and non-exempt employees. Therefore, we’ve compiled a list of frequently asked questions to help you find the answers you’re looking for.

Is Non-Exempt Hourly or Salary?

Non-exempt employees can be paid either hourly or salary — or even on a different basis, like a contract. If an employee is categorized as non-exempt while receiving a salary, that employee can be described as “salaried non-exempt.” This employee is eligible for overtime pay and minimum wage.

What Does Hourly Non-Exempt Mean?

“Hourly non-exempt” is in contrast to the term “salaried non-exempt.” An employee who is described as hourly non-exempt receives an hourly wage while being classified as non-exempt. This employee is eligible for overtime pay and minimum wage.

I Receive an Annual Salary of Over the Minimum Threshold — Why Is My Job Telling Me I’m Non-Exempt?

An employee must pass three FLSA tests to be considered an exempt employee. While it is true that there is a minimum salary threshold, or the “Salary Level Test” — meeting this is only one of the three tests.

Additionally, an employee must also pass the “Salary Basis Test,” which means they can rely on a regular payment for each pay period. For example, this employee would not have their pay docked if they called in sick one day of the week.

The final test is the “Duties Test,” and it requires that your job description fulfills certain duties in either an Executive, Professional or Administrative capacity to be considered “exempt.”

Disclaimer: None of the information in this article is intended to serve as legal advice. For legal advice, please consult a lawyer licensed to practice law in your state.