In 1938, President Franklin D. Roosevelt’s “New Deal” brought about the Fair Labor Standards Act (FLSA), a landmark legislation that established minimum wage, overtime pay, record-keeping, and child labor standards for both private and government employees. It also defined exempt and non-exempt categories for workers, with exempt employees being free from overtime pay obligations. Understanding accurate classification is crucial for employers to avoid compliance violations.
What Is an Exempt Employee?
Exempt employees hold positions that make them ineligible for minimum wage, overtime regulations, and certain protections afforded to non-exempt workers. These individuals often work on a salaried basis and commonly hold executive, supervisory, administrative, or professional positions. While exempt from FLSA standards, they are expected to fulfill their job duties for the agreed-upon amount of pay, no matter how much time it takes.
What Is a Non-Exempt Employee?
Non-exempt employees are individuals who are eligible for FLSA requirements, including the federal minimum wage and overtime pay for working more than 40 hours per week. While most of these roles follow an hourly rate basis, it’s not uncommon to see employees earning salary or commission.
Wage and Hour Laws
Labor Laws provide the legal guidelines for employers to pay employees and include wage and hour laws. The federal minimum wage rate currently stands at $7.25 per hour. Employees covered by the FLSA (non-exempt) must also be eligible to receive paid leave, breaks, and overtime pay at time-and-one-half their regular rate when working more than 40 hours per week.
Exempt overtime occurs in highly unusual circumstances, stating that workers who do not earn at least $35,568 a year must be paid overtime (known as the September 2019 Final Rule). In the case of non-exempt employees who are paid on a salary or commission basis, their hourly rate can be calculated by dividing the total pay earned by the total number of hours worked.
What Employment Classification is Best for You?
When weighing the pros and cons to both exempt and non-exempt employment, several factors are important to consider. The bottom line is that exempt employees typically enjoy higher salaries and greater independence compared to their non-exempt counterparts. While exempt workers may have flexibility in their schedules, such as extended lunches or midday appointments, they often work beyond the standard 40-hour week, which can entail early mornings or late evenings.
While on the other side, non-exempt employees tend to be more regulated, needing to track clocking in and out, and only being paid for the time they work. However, they are compensated for all hours worked, with overtime pay kicking in for any time exceeding 40 hours per week, leading to a potentially higher paycheck.