Exempt and nonexempt employees classify which type of employee is entitled to certain rights, like overtime agen slot online pay, under the Fair Labor Standards Act (FLSA). Businesses need to classify employees based on certain qualifications like responsibilities held and payment structure. This distinction is important to understand as an employer, as it’s crucial to understand the rights of different types of workers under the law.
According to federal regulations, employees fall under one of two categories: exempt or nonexempt. Employers cannot classify their employees based on personal preference; instead, they must follow preset federal guidelines that determine how employees are classified. It is important to be knowledgeable about both federal and state classifications. Misclassification can be very costly, and penalties can be assessed retroactively.
What is the difference between exempt and nonexempt employees?
To comply with labor laws and wage regulations, business owners must know how to properly classify employees. Lauren Blair, attorney and author at FreeAdvice.com, said the key differences between exempt and nonexempt status are based on an employee’s job responsibilities, decision-making authority, and compensation.
“The factors that determine whether an employee can be classified as exempt or nonexempt are governed by the FLSA federal regulation, which is administered by the Wage and Hour Division of the Department of Labor,” Blair told business.com. “The DOL will not just accept what the employer calls the employee. Rather, the regulations are designed to scrutinize the reality of someone’s job.”
Based on criteria in the FLSA, an employee is either ineligible for overtime pay (exempt) or eligible for overtime pay (nonexempt).
Exempt employees are typically salaried workers who are exempted from (i.e., not eligible for) overtime pay, regardless of how many hours they work per week.
A common misconception is that all salaried employees are exempt, when in fact, there are several guidelines that an employee must meet before they qualify as exempt.
According to the FLSA, an employee must pass each of the following tests to be considered exempt:
Salary-level test: An employee must earn a minimum salary of at least $684 per week or $35,568 per year for a full-year worker. The DOL recently raised this threshold (effective January 1, 2020) from the previous requirement of $455 per week or $23,600 per year for a full-year worker.
Salary-basis test: An employee must be paid a guaranteed salary for any week they perform “any” work.
Duties test: An employee must perform exempt job duties which typically consist of executive, professional or administrative tasks.