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Exempt Vs Non-Exempt Employees

Updated: Jan 27, 2023

Whether your employees are exempt or non-exempt has ramifications for everything from time tracking to overtime pay eligibility. But before you can effectively categorize your staff, you need to know what exempt and non-exempt means, as well as what each type of employee requires.

The Fair Labor Standards Act (FLSA) dictates the classifications. After the Great Depression, this far-reaching federal law was enacted in 1938. It established a slew of labor restrictions, including the federal minimum wage, overtime pay standards, and the 40-hour workweek. The FLSA also specifies which employees are covered by their laws and who isn’t.

What’s the Difference Between Exempt and Non-Exempt Employees?

Non-Exempt employees are covered under the FLSA. This means that you must pay these workers at least the federal minimum wage for the hours they work. You must also pay overtime compensation at time and a half for every hour over the 40-hour workweek. Hourly employees are virtually always non-exempt employees.

Salaried employees, on the other hand, are normally considered exempt. According to the Department of Labor, this means those employees are excluded from the FSLA's overtime and minimum wage laws.

Can Hourly Workers Be Exempt?

While the FSLA governs the treatment of most hourly workers in the United States, it excludes some industries and occupations. Businesses can pay employees an hourly wage in certain situations, but the FSLA does not protect them. As a result, they are not entitled to overtime pay or the minimum wage.

Some employees in the hospitality industry, such as restaurant staff, truck drivers, and movie theater employees, are excluded. Furthermore, outside sales roles and occupations in the agriculture business are frequently excluded, even if they are paid by the hour.

‍Requirements for Non-Exempt Employees Vary by State

While the FSLA applies to all businesses in the United States, individual states may have their own labor laws that apply to non-exempt employees. Minimum wage pay is the most common. While federal law establishes a minimum wage, most states pass their own, which differs from state to state. For example, in Washington, the minimum wage is $13.50 per hour, but in Texas, it is $7.25 per hour. The state minimum wage will never be lower than the federal minimum wage.

While federal law does not govern breaks or lunchtimes, states may have their own guidelines about how long breaks should be and whether or not they should be compensated. You must comply with both federal and state labor laws as an employer. As a result, be sure to familiarize yourself with any state-specific rules.

Can Exempt Employees be Paid an Hourly Rate?

In some circumstances, paying an exempt employee on an hourly basis makes sense. Perhaps the employee wishes to take on a side project outside of her regular responsibilities or work part-time. In order to be exempt from the Federal Labor Standards Act. A salaried employee must first pass the responsibilities test, which determines which types of work are qualified for exemption.

‍‍‍Employers must then pay the employee on a salary basis. If a new work arrangement makes it more acceptable for an employee to be paid on an hourly basis, that employee must be reclassified as a non-exempt employee. After that, the employee is entitled to overtime pay and must receive at least minimum wage.

Should I Classify my Employees as Exempt or Non-Exempt?

The nature of your company and the type of work you perform will determine whether your workers are exempt or nonexempt. Knowing the distinctions between the two and why it's critical to follow both sets of standards can keep your organization in compliance and out of trouble.

It might be difficult to navigate the nonexempt worker landscape. That’s why having an HR expert who is well adept in labor laws is invaluable. Cornerstone PEO could be the ace up your sleeve when dealing with exempt and non-exempt employees.

The Cornerstone Advantage

Cornerstone PEO has a team of HR professionals who are experts in the different state by state labor laws. Failing to classify an employee correctly can result in harsh fines that could hurt your bottom line and tarnish your brand’s reputation. Having Cornerstone in your corner ensures that you maintain compliance. Cornerstone PEO also takes the burden of payroll off your plate, so you don’t have to worry about different state compensation laws.

Like other PEOs, Cornerstone will help you save significantly on employee benefits, automate your payroll, lower your experience modifier, and help with certain employee-related compliance. However, unlike other PEOs, our focus is on excellent customer service.

Other PEOs will just add you to their system and send you an invoice. At Cornerstone, we assign a professional customer service rep to work with your account. This not only adds more of a human touch, but it also allows us to create custom solutions unique to your business. Got questions? We have a rep to help you answer them. A problem occurred? You have a rep who understands your business and can create an effective solution.

Contact us here for a FREE consultation.


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