The exemption status under the Fair Labor Standards Act (FLSA), a federal law in the United States, is a critical determination that impacts how an employee’s pay is structured and whether they are entitled to overtime pay. The FLSA sets standards for minimum wage, overtime pay requirements, recordkeeping, and child labor for full time employees and other workers. Understanding the distinction between “exempt” and “non-exempt” status is important for both employers and employees.
What is Exempt Status?
An exempt employee is one who is exempt from the minimum wage, overtime rules, and other rights and protections offered under the Fair Labor Standards Act (FLSA). This means that the employee has exempt job duties and does not receive paid overtime for hours worked beyond the standard 40-hour workweek. Exempt employees are generally paid a salary as opposed to hourly wages, overtime payments, and they often hold executive, administrative, or professional roles within an organization.
What is Non-Exempt Status?
Non-exempt employees, on the other hand, are protected by the FLSA minimum wage and overtime provisions. This means that they must be paid at least the federal minimum wage for all hours worked, and they must receive overtime pay for any hours worked beyond 40 in a workweek.
It’s also important to note that the non-exempt status extends to other employees who do not meet the specific criteria set out by the FLSA for exempt status. This includes many hourly employees and some salaried employees if they do not meet the salary basis test or duties test set forth by the FLSA.
Understanding the FLSA
The Fair Labor Standards Act (FLSA) is a federal law that establishes standards for minimum wage, require overtime pay, recordkeeping, and youth employment in the United States. It is enforced by the Wage and Hour Division (WHD) of the U.S. Department of Labor. It’s crucial for all employers and employees to understand the FLSA to ensure compliance and proper compensation.
Related: Learn more about conducting your own FLSA exempt test.
Determining FLSA Exemption Status
The determination of an employee’s FLSA status, whether exempt or non-exempt, is not based on job titles, but on the specific job duties and compensation. There are three tests to determine exempt status under FLSA: the salary basis test, the salary level test, and the duties test.
The Salary Basis Test
The salary basis test requires that an employee be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed. This salary must be a set amount that cannot be reduced, regardless of the number of hours the employee works.
The Salary Level Test
The salary level test sets a minimum salary threshold that an employee must earn to be considered exempt. As of my knowledge cutoff in 2021, the FLSA minimum salary threshold for exempt employees is $684 per week (equivalent to $35,568 annually for a full-year worker).
The Duties Test
The duties test examines the actual job tasks and responsibilities of an employee. An employee’s primary duty must involve the kind of work associated with exempt employees, as defined by the FLSA. The duties test typically applies to workers in executive, administrative, professional, computer, and outside sales positions.
Exempt Status: Categories and Roles
Under the FLSA, there are several categories for exemption: Executive, Administrative, Professional, Computer, Outside Sales, and Highly Compensated Employees.
Executive Exemption
To qualify for the executive exemption, all of the following tests must be met:
- The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $684 per week.
- The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise.
- The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent.
- The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
Administrative Exemption
The administrative exemption applies to employees whose main duties involve office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. To qualify for the administrative exemption, the following conditions must be met:
- The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684 per week.
- The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.
- The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
Professional Exemption
The professional exemption applies to employees who perform work requiring advanced knowledge in a field of science or learning, typically acquired through a prolonged course of specialized intellectual instruction. This can include roles such as doctors, lawyers, teachers, engineers, and accountants. The professional exemption can also apply to an artistic or creative endeavor if the work performed is original and creative in character in a recognized field of artistic or creative endeavor.
Computer Employee Exemption
The computer employee exemption applies to employees who work as a computer systems analyst, computer programmer, software engineer or other computer programs related or similarly skilled worker in the computer field. The duties of these roles often include the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications.
Outside Sales Exemption
The outside sales exemption applies to employees whose primary duties involve making sales or obtaining orders or contracts for services or the use of facilities. These employees must regularly work away from the employer’s place of business to qualify for this exemption.
Highly Compensated Employees
Highly compensated employees performing office or non-manual work and paid total annual compensation of $107,432 or more (which must include at least $684 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative, or professional employee.
Non-Exempt Employees and the FLSA
Non-exempt employees are entitled to overtime pay under the FLSA. This means that they must be paid time and a half for any overtime hours worked beyond 40 in a single work week. Non-exempt employees can include many types of workers, including hourly workers, non-exempt salaried workers, and some types of manual laborers.
What Does Non-Exempt Mean in FLSA?
Under the Fair Labor Standards Act, non-exempt employees are eligible for overtime pay and must be paid at least the federal minimum wage for all hours worked. The primary factor in determining whether an employee is exempt or non-exempt is the nature of their work rather than their job title. For example, a software engineer who is paid hourly and does not meet the specific exemption criteria would be considered a non-exempt employee.
Examples of Non-Exempt Employees
Non-exempt employees often include hourly workers such as retail associates, customer service representatives, and food service workers. However, there are also many salaried workers who do not meet the exemption criteria and are therefore considered non-exempt.
For example, an administrative assistant who earns a salary but whose primary job duties do not involve independent judgement or discretion in matters of significance would be classified as a non-exempt employee and would be entitled to overtime pay if they worked more than 40 hours in a week.
Similarly, a software engineer who is paid on an hourly basis and whose work is closely supervised and does not require high-level problem-solving or discretion would be a non-exempt employee under the FLSA.
Benefits of Exempt vs Non-Exempt Status
Each status, whether exempt or non-exempt, has its advantages and potential drawbacks.
Exempt Employees
Exempt employees tend to have more flexibility in their schedules and may be able to take time off without losing pay as long as they complete their work. They also typically receive a consistent salary, which can make it easier to budget and plan financially. However, exempt employees are not paid for overtime work, which could lead to working long hours without additional compensation since employers are not required to pay overtime for the pay period.
Non-Exempt Employees
Non-exempt employees, on the other hand, are guaranteed overtime pay when they work more than 40 hours in a work week, which can lead to higher earnings. They are also guaranteed at least minimum wage for all hours worked. However, their hours are often more strictly scheduled and regulated, and they are typically paid only for the actual hours they work.
In Conclusion
The distinction between exempt and non-exempt status under the Fair Labor Standards Act (FLSA) plays a critical role in determining an employee’s rights and compensation. Both employers and employees must understand the differences to ensure fair treatment and compliance with the law. It’s also crucial to remember that job duties and salary levels, rather than job titles, determine FLSA status.
Ultimately, whether being an exempt or non-exempt employee is a “good thing” depends on individual circumstances, including job duties, work-life balance, and financial considerations. It’s always important for employees to understand their FLSA status and the implications it has on their work conditions and compensation.
While this article provides a comprehensive overview of the FLSA and exempt and non-exempt status, it’s important to consult with a labor law expert or HR professional for specific situations, as state and local regulations may also apply.
