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Exempt vs. Non-Exempt: Are You Classifying Your Employees Correctly?

Posted by Nina Panugaling on November 19, 2019

With new overtime rules being implemented on January 1st, understanding the difference between an exempt and a non-exempt employee can be key. In fact, one of the most significant differences between exempt and non-exempt employees is whether they are eligible for overtime pay. The status of each employee is determined under federal law through the Fair Labor Standards Act (FLSA).

An important caveat to this is that in addition to the FLSA, additional state laws are applicable, and employers are expected to be in compliance with both state and federal regulations. Before we go into exactly what exempt vs. non-exempt means, let’s talk about why it matters.

Why Does the Exemption Status Matter?

Initially passed in 1938 (and amended several times since), the FLSA is a federal law that was enacted to ensure workers had sufficient protection against unfair pay practices and/or work regulations. Some examples of this include unequal pay, being made to work excessive hours, lack of compensation for working overtime as well as unsafe working conditions.

Defining whether an employee is exempt or non-exempt ensures that the employee is being paid fairly under the FLSA. However, the FLSA does not strictly cover overtime, but also provides standards for leave, minimum wage and more. Exemption status is determined by how much money the employee earns, what type of work they do, and their specific roles and responsibilities.

Exempt Employees

What is an exempt employee? To start, an exempt employee is not covered by the FLSA, meaning they are not eligible to receive overtime pay and may not even be eligible for minimum wage or any other protections under the FLSA. The exempt employee is typically salaried and not paid hourly AND makes over $455 per week. This status can be advantageous to employers because if the assigned work is not completed within 40 hours, they do not have to pay overtime to ensure completion. An employee who falls under the exempt status can work 35 hours or 55 hours and their salary will not change.

An exempt employee also typically falls under one of three career categories: executive, professional and administrative. Executive employees must be in a position of managing a firm or subdivision of the company, routinely direct the work of at least two employees and have the authority to hire and fire employees.

A professional employee is broken down into three categories: creative, learned and teaching professionals. These professional employees have undergone extensive academic instruction and earned a specialized academic degree in their related field. Some of the professions that would fall under a “professional employee” for exemption purposes would be doctors, dentists, pharmacists, teachers, lawyers, accountants (not bookkeepers), engineers, clergy, architects, and more.

Finally, the administrative employee must have a job that is made up of office (or non-manual) work relating to management or business operations of the company and must involve the independent judgment and discretion regarding matters of significance. While many assume that a secretary would be considered an exempt employee, this position does not normally fall under that category and is in fact, non-exempt more often than not, but an office manager can be considered exempt.

While a dentist or dental assistant is typically classified as exempt under the professional exemption, hygienists usually are non-exempt. Under the administrative exemption, receptionists and secretaries are not normally exempt. The administrative exemption would come into play for office managers and team leaders who are in a position of making decisions regarding matters of significance to the practice.

Similarly, a doctor or physician’s assistant would be considered exempt under the professional exemption along with nurses who are in charge of other nurses and/or nursing operations. Nurses are generally considered non-exempt and eligible for overtime pay. One exception to this would be nurses who predominantly do paperwork and other office work and may be exempt under the administrative exemption, depending on the scope of their duties.

Non-Exempt Employees

As the name implies, employees who fall under the non-exempt status are not exempt from the governing FLSA. Any employee falling under the non-exempt status must be paid for every hour worked up to 40 hours and will then receive time and a half (1.5) for additional hours worked.

Again, it is important to check with your state’s Department of Labor to determine the state laws governing exemption status. California, for example, states that employees will be paid at their overtime rate if a non-exempt employee works over 8 hours in a day versus most states kicking in after an employee has reached their 40 hours in a week.

Salaried vs. Hourly Employees

A common misconception is that all salaried employees will fall under the exempt status. Salaried employees who make a fixed, full-time wage of at least $455 per week, regardless of hours worked in a week, fall under the exempt status. However, salaried employees who earn a fixed wage for less than 40 hours a week (less than $455 per week) are in fact eligible for overtime pay under the FLSA. Hourly employees, meaning an employee earns pay based on the number of hours worked, are non-exempt and must be paid overtime in accordance with both state and federal laws.

Exclusions from the FLSA

There are some jobs that are completely excluded from the FLSA overtime rules but may have their own governing regulations. For instance, many agricultural employees and employees of some movie theaters fall under the category of complete exclusion. Another category that fits the bill for total exclusion would be jobs which would fall under other federal labor laws. Examples of those jobs include railroad workers and truck drivers as they have their own individual governing regulations.

The new overtime rules are set to go into effect on January 1st and is estimated to affect 1.3 million workers. The end of the year may be approaching, but you do still have some time to prepare. Take some time to review your employee classifications to ensure they are all appropriately categorized into exempt vs. non-exempt. In addition to the FLSA, you’ll want to double check the laws for your state to ensure that you are compliant with both state and federal laws.

For more information regarding the new overtime rules going into effect January 1st, please check out New Overtime Rules for 2020: Here’s What You Need to Know.


If you have questions about the new overtime rules or any other human resources issues, please reach out to us  via one of the following methods: SCHEDULE A CALL, or call: 877.779.4747, or email: compliance@hrforhealth.com today!


HR for Health is one of the nation’s leading Human Resources Management Systems (HRMS) used by small to mid-sized practices. 


 

Quick note: This is not to be taken as legal or HR advice. Since employment laws change over time and can vary by location and industry, consult a lawyer or HR expert for specific guidance. Learn about HR for Health's HR services

 

Topics: Wages, compliance, FLSA, exempt, non-exempt