Non-Exempt Employee vs. Exempt Employee: Why You Need to Note the Difference

Two employees, a nurse and a doctor, walk into a medical facility. The nurse rushes to clock in — she is running late. The doctor yawns, striding past the nurse and thinks about how much he wants a quick nap.

The Fair Labor Standards Act (FLSA) is the relevant federal law regulating how employees are treated and paid, as well as what employees are eligible for overtime. For example, the law defines the nurse as non-exempt, provided that they are paid an hourly wage and work over 40 hours during a workweek. While the law establishes the doctor as exempt, someone paid on a salary basis with no overtime pay.

What Does the FLSA Cover?

The FLSA governs a long list of essential human resources (HR) requirements for both the employer and employee. Primarily, the FLSA can have a significant impact on the salary level of an employee. 

The FLSA guidelines cover:

• The federal minimum wage
• Equal pay
• Overtime pay
• Rules about employee breaks
• Job descriptions for exempt employees
• Income thresholds for non-exempt employees
• Definitions for part-time or contractual employees
• Information about the child labor law

The FLSA is the go-to source for everything exempt and non-exempt. It can also help you make critical salary distinctions, understand hourly rates, and what is exempt. On top of that, it can also help you determine what job protections must be enacted for all employees. 

What Are the Primary Differences Between Non-Exempt and Exempt Workers?

As a non-exempt worker, who is paid hourly, you have the extra incentive of getting paid for any work you perform over 40 hours per week. You also have the same incentive if you work over a set number of hours in a day for states with daily overtime requirements. You don't get to enjoy this benefit when you are classified as exempt.

On the other hand, exempt employees include people who work as executives, administrators, professionals, or outside sales roles. As exempt employees, they receive a salary and are not paid overtime. If you work in an exempt role, the extra time you work will not impact your salary. 

However, a job title does not necessarily determine exempt or non-exempt status. Anyone can hold an executive, professional, or administrative title. It's important to note that the title doesn't matter regarding exempt vs. non-exempt status. An employee's job duties, not title, determines your exempt or non-exempt status. This means that you could have an exempt hourly OR salary hourly exempt employee.

This also means you don't have to consider salary or hourly pay. Indeed, if an employee’s job duties qualify, you may have hourly exempt employees. When it comes to pay, hourly is exempt or nonexempt depending on the job duties assigned to the individual in question.

For instance, to receive an administrative exemption as an administrative employee, you must engage in office activities related to a company’s operations. This means that your decisions have to affect the practice directly. Otherwise, the law defines you as non-exempt.

Moving an Employee from Non-Exempt to Exempt

There may be instances where you think it is more appropriate and cost-effective to move an employee to exempt. Ideally, you can accomplish this, but it must be done carefully. 

First, you'll have to ensure that you meet all relevant federal and state tests and that you are in line with any other applicable Department of Labor (DOL) regulations that may apply to your field. Second, employers must clearly communicate these changes with an employee in advance, explain how these changes will impact their annual salary over a given pay period, and discuss their impact on their duties. Finally, an employee must meet the salary vs. hourly employee test requirements, which means that they must:

• Make more than $23,600 a year.
• Pass the various requirements of the salary basis test.
• Pass the duties test, which means that they perform exempt job duties. This includes supervising employees, management responsibilities, and control over other employees' jobs.

Which Businesses Pay Overtime?

If you own or manage a practice with revenues of at least $500,000 in gross receipts, you must pay overtime to non-exempt employees. 

To ensure non-exempt employees receive adequate compensation, HR professionals should create an overtime policy that classifies employee roles and prevents future disputes, internally and legally. You must also maintain appropriate documentation to prove why this employee classification meets relevant legal protections. Remember that misclassification of employees can result in severe fines and the employee's salary plus overtime back pay.

As of August 2022, the U.S. Department of Labor set the federal minimum wage at $7.25 per hour.

Some states also enforce minimum wage laws. The minimum wage for non-exempt employees represents the higher minimum wages on the federal and state levels. For example, as of 2021, Hawaii non-exempt workers receive a minimum wage of $10.10 per hour, while Illinois pays a minimum wage of $11.00 per hour. Other states, such as Alabama, follow the standard set by the Federal government.

How to Remain Exempt

Both non-exempt and exempt employees may work in healthcare. An employee must make $684 per week or receive an hourly rate of $27.63 to remain exempt.

The good news is that employers can use standard timekeeping practices for non-exempt workers who perform remote work, asking employees to report the actual number of hours worked. On August 24, 2020, the Department of Labor, Wage and Hour Division provided guidelines concerning non-exempt telecommuters. It was discussed that remote workers who are non-exempt would receive compensation for all the hours they record, even those not requested by their employers.

Medical Professionals: Who Is Exempt or Non-Exempt?

Remember, job duties — not job titles — determine exempt or non-exempt status. For example, given their supervisory responsibilities, doctors will almost always be exempt, save for some very rare circumstances. 

Many medical professionals who work hourly will be considered non-exempt. These include technicians, administrative professionals, and medical assistants. This is because they will likely make enough income, under the current thresholds, to remain non-exempt. They are also less likely to perform exempt job duties, like supervisory. 

The distinction between exempt and non-exempt nurses depends on the job duty of the nurse in question. An executive exemption may be given to nurses under the right conditions. This includes circumstances in which a nurse:

• Hires and fires employees or supervises at least two employees.
• Performs nursing duties and receives a salary.
• Performs nursing duties and receives pay on a fee basis, like a per diem.

However, if nurses perform nursing duties and are paid hourly, they are automatically non-exempt and entitled to overtime compensation.

Key Takeaways

When distinguishing between exempt and non-exempt payments, you must assess an employee's eligibility for overtime under the FLSA. Basically, non-exempt employees receive overtime, while exempt employees do not receive compensation.

What HR concerns do you have as a healthcare administrator or executive? We can provide solutions that meet your needs for payroll, time and attendance tracking, performance and task management, and electronic recordkeeping. Learn more about our software solutions and consulting services here.

HR for Health can help you monitor all the specific laws and regulations affecting your practice. If you have questions about compliance issues, contact us. You may schedule a call at (877) 779-4747 or email us through compliance@hrforhealth.com to learn more.