Time & Attendance
Prevent Call Outs
Implementation & Launch
By Joshua Chapman
Oct. 3, 2022
Exemption in the context of employment classification refers to whether or not a worker is eligible for certain Fair Labor Standard Act protections regarding overtime and minimum wage. Exempt employees are non-eligible for these FLSA rights, while non-exempt employees are eligible.
The difference between exempt and non-exempt employees is often not fully understood. For instance, some people will incorrectly say all salary workers are exempt while all hourly workers are non-exempt.
While this oversimplification may often be correct, it distorts the actual difference between these two classifications and can lead to dangerous outcomes. The difference between exempt and non-exempt employees has to do with how much these workers make and the duties they perform; any employees who meet these specific (and sometimes subjective) criteria are exempt from FLSA-mandated minimum wage or overtime pay requirements.
Understanding which criteria qualifies an employee for exempt status affects both your hiring and payroll practices. Misclassifying an employee, even unknowingly, can result in serious DOL investigations and fines. Once you understand what a non-exempt employee is and why, you can hire with confidence, knowing that there are no reclassification surprises awaiting your company moving forward.
An exempt employee is anyone who earns a salary or makes more than $684 a week and falls under one of these specific exemption categories:
It’s important to note that job titles alone do not satisfy these exemptions. Job duties should align with job titles in case your classifications are ever contested.
A non-exempt employee is anyone who does not meet any of the exceptions listed above. This includes anyone considered blue collar or who is employed as a first responder. Generally, salaried workers fall under some form of exemption; however, this is not always necessarily the case.
All non-exempt employees receive certain protections under the Fair Labor Standards Act (FLSA). These protections include:
These standards are updated from time to time, so be sure to check back periodically with the DOL website for any changes made to the FLSA.
Employee misclassification is no small matter. Even honest mistakes can lead to financial hardships and reduced morale for your employees. Here’s what you can expect if you’re forced to reclassify an employee.
All of this can add up to thousands of dollars for your company and be a major headache for HR as you scramble to deal with the fallout.
To avoid the costs associated with misclassification, get all of your employee classifications accurate from the start. Here are some tips you can follow to get it right every time.
Although there is a standard set of rules for classification, there are also exceptions and distinctions for specific industries or jobs. For instance, the DOL explicitly details what youth lifeguards are allowed to do and at what age.
Before you classify an employee, be familiar with relevant exemptions that may affect the employees you hire. You can find all of these exemptions on the DOL website — just look through to see if there are any factsheets that might affect your hires.
Some businesses try to get around the exempt vs. non-exempt distinction by classifying employees as independent contractors to save money. Like exempt employees, independent contractors do not get protection under the FLSA, so businesses don’t need to pay them overtime or minimum wage. As well, because they aren’t technically employees, businesses don’t need to provide benefits or pay certain employment taxes.
However, misclassifying your employees as independent contractors runs similar risks as misclassifying non-exempt employees. Your company could be on the hook for thousands in fines, back pay, back taxes, and more if you’re forced to reclassify.
Know the state laws, if any, that add extra protections for employees. A common example of this in play is in California where they have implemented more stringent salary requirements to meet exemption criteria.
Each state may have its own laws that affect minimum wage, exemption requirements, or more. Frequently review these laws to make sure they’ve not been updated and that you’re still in compliance.
Exemption classifications are based on what employees actually do on the job and not what their job description says. For instance, if someone holds the job title “manager,” but doesn’t have the ability to influence hiring or firing, they wouldn’t qualify under the exemption for executive employees.
HR needs to be aware of gaps between what employees do and what their stated duties are. If this gap exists and a misclassification has occurred, it’s better to deal with this problem sooner rather than later to avoid further disruptions and financial penalties.
Staying compliant with employee classification is just one facet of what HR departments need to handle every day to keep their businesses out of trouble with labor laws and regulations. To help them do their job more effectively, they need the right workforce management tools and education that’ll allow them to proactively make sure every facet of hiring and payroll is compliant with relevant labor laws.
To learn more about keeping your business compliant, read our Complete Guide to Wage and Hour Compliance. In this guide, you’ll see what you can do to ensure your business keeps up with the ever-changing rules and expectations of our modern economy.
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