Exempt vs. Non-Exempt Employees: Key Differences Explained

Shifting federal laws, evolving job descriptions, and different work arrangements all make employee classification (the process of determining whether workers are “exempt” or “non-exempt”) a complex people management task.

Consider this: Last year, courts issued more certification rulings for labor law violation collective actions than for other types of cases, according to law firm Duane Morris’s Class Action Review 2024.

The good news is that it’s possible for HR professionals to navigate the various labor laws if they have a robust understanding of what’s required. Here’s a primer on the difference between non-exempt and exempt employees and best practices to help steer clear of legal issues. 

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Definitions of Non-Exempt and Exempt Employees

In their most basic form, the terms “exempt employee” and “non-exempt employee” refer to whether workers are excluded from or qualified for overtime pay. Here are definitions for non-exempt and exempt positions. 

What is a non-exempt employee? 

A non-exempt employee is someone who qualifies for at least the federal minimum wage and overtime protection laws under the Fair Labor Standards Act (FLSA). When employees with a non-exempt status work more than 40 hours per week, they earn an overtime hourly rate of at least 1.5 times their regular rate for hours worked. If the state minimum wage where they live is higher, they earn at least the higher of the two. 

What is an exempt employee? 

An exempt employee is not eligible for overtime pay. In other words, these workers are exempt from overtime and minimum wage requirements. As defined by federal regulations under the FLSA, these workers fall into specific categories, such as “executive” or “administrative,” and are typically salaried employees. 

FLSA Criteria for Exempt Status

As employers determine whether a worker is exempt, they must ensure that the role meets FLSA’s criteria. That criteria covers two main benchmarks: A salary threshold and the employee’s job duties. 

1. Salary Threshold

According to the US Department of Labor (DOL), to be considered exempt, an employee must earn a minimum weekly salary of $844 (or $43,888 annually) as of July 1, 2024. That will grow to a minimum salary requirement of $1,128 per week, or $58,656 annually, starting January 1, 2025. Anyone earning less is automatically considered non-exempt, regardless of their on-the-job duties.

2. Job Duties Test

Next, to be classified as exempt, an individual also must meet criteria related to their specific job duties. The FLSA fact sheet by the DOL spells out the multi-pronged tests in further detail, but they generally cover the following considerations: 

Executive Exemption 💼

An exempt executive employee’s primary duty must involve managing an enterprise, department, or business segment. The individual also must supervise at least two full-time employees and have the authority to hire or fire individuals or make recommendations that impact the final decision on hiring or firing. 

Executive Employee Job Title Examples

• Chief executive officer
• Vice president
• Store manager

Administrative Exemption 📠

An exempt administrative employee’s primary duty is performing office, non-manual, or traditionally white-collar work that is directly related to business operations. The individual also must exercise independent judgment in matters of significance.

Administrative Employee Job Title Examples

• Customer service manager
• Human resources manager
• Auditor

Professional Exemption 🩺

This exemption covers two areas — learned professionals and creative professionals. To qualify for the learned professional exemption, an employee must have advanced knowledge in a field of science or learning, customarily acquired through prolonged specialized education. A creative professional must perform work requiring invention, imagination, or talent in a specific artistic or creative endeavor. 

Professional Employee Job Title Examples

• Doctor
• Lawyer
• Actor

Computer Employee Exemption 💻

An exempt computer professional’s primary duty consists of the application of systems analysis procedures or the design, development, and creation of computer systems, programs, or machine operating systems. These employees can be paid according to the salary threshold listed above or at an hourly rate of at least $27.63 per hour. 

Computer Employee Job Title Examples

• Computer systems analyst
• Computer programmer
• Software engineer

Outside Sales Exemption 📞

To qualify for this exemption, the worker’s primary duties must involve making sales and obtaining orders or contracts away from the office.

Outside Sales Exemption Job Title Examples

• Field sales representative
• Pharmaceutical salesperson
• Regional sales manager

Highly Compensated Employee Exemption 💰

Highly compensated employees whose primary duties include performing office or non-manual work in at least one of the responsibilities of exempt executive, administrative, or professional workers can also be declared exempt. They must earn at least $132,964 per year (with $844 or more per week paid on a salary or fee basis) as of July 1, 2024. After January 1, 2025, highly compensated employees must earn at least $151,164 annually, with at least $1,128 per week paid on a salary or fee basis.

Highly Compensated Job Title Examples 

• Accountant 
• Business consultant
• Financial manager

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Key Differences Between Non-Exempt and Exempt Employees

Here are some important differences between exempt and non-exempt roles to keep in mind to avoid common missteps and compliance issues.

Compensation Structure

• Non-Exempt: Typically paid an hourly wage and must be compensated for overtime for the number of hours they work over a 40-hour workweek.
• Exempt: Typically salaried and do not receive extra pay for hours worked beyond a 40-hour workweek.

Pro Tip: Employers can’t dock the pay of an exempt worker for leaving early on a Friday for a doctor’s appointment. “If you, for any reason, deducted pay for that, you’re ultimately then treating that person like an hourly employee, and you might get yourself into further trouble,” said Kyle Pardo, executive vice president at AIM HR Solutions, an HR consulting group.

Work Hours and Overtime

• Non-Exempt: Must receive overtime pay, which encourages employers to carefully manage hours worked.
• Exempt: Expected to complete their work without consideration of hours, which may lead to longer hours and potential burnout

Pro Tip: Employers must put policies in place that cover how and when an employee can work overtime, as well as any consequences if they work unauthorized overtime, such as a warning or even termination, said Rachel Ego, owner of and human resources director at Big Time HR, an HR consulting firm. “You still have to pay it if an employee works it,” Ego said. “[But then] you have to follow through on a disciplinary action.”

Legal and Compliance Considerations

Employers can get themselves in trouble when they skirt employee classification rules or incorrectly interpret them. Here are legal and compliance considerations to keep in mind. 

Penalties for Misclassification

Employers face back pay, fines, and lawsuits when they incorrectly classify employees. In fact, in fiscal year 2024 alone, the DOL’s Wage and Hour Division won over $273 million in back wages for workers from overtime and other labor law violations. 

Misclassification can occur for a variety of reasons. Sometimes, it might be unintentional. The owner of a boutique, for example, might give a senior clerk closing privileges, the title of “manager,” and a weekly salary as part of a promotion for great work. But, if that worker doesn’t have any managerial tasks other than closing the shop twice a week, they wouldn’t be considered exempt. 

In other cases, it’s intentional. A manager, for example, might declare a worker exempt even if they don’t meet the salary threshold and job duties test in an effort to save money and avoid paying overtime. “That’s actually not how it works,” said Rachel Platt, founder and CEO of PLATTinum Consulting, an HR consulting firm. “The law is in place to protect employees from being taken advantage of, and there are true definitions of what qualifies someone as exempt and non-exempt.” 

State-Specific Variations

While the Fair Labor Standards Act sets federal guidelines, some states, such as California, Alaska, and Nevada, have stricter overtime or classification rules. 

“Keeping up with those states and changes in state laws is really important,” said Michael Baer, president of Baer Unlimited, a compliance consultancy for payroll service providers and payroll professionals. “If you have a presence in any of those states that have that, you’ve got to factor that in because you’re going to get burned if you don’t.” 

Recordkeeping for Non-Exempt Employees

Under the Fair Labor Standards Act, employers must track work hours, breaks, and overtime for non-exempt employees. This may require additional payroll software or timekeeping solutions such as Lattice Payroll. The tool connects timesheets with Lattice’s human resources information system (HRIS) and Talent Suite to make it easier for employees to clock their time, managers to make approvals, and employers to think strategically about performance and compensation. 

4 Best Practices for Exempt vs. Non-Exempt Decisions

Employers can help protect themselves from claims by being intentional about employee classification decisions. Here are four best practices. 

1. Regularly review employee classification.

Regular reviews ensure compliance with the latest federal and state laws. That should include keeping job descriptions up-to-date to include all of a role’s required tasks and why it’s exempt or non-exempt.

Ego recommended annual job description audits. “If we’re going to make a salaried, exempt role, we want to make sure that there is a reflection of independence, there is a reflection of how many people they supervise, and that there is a reflection that the role has discretionary abilities,” she said.

2. Invest in HRIS tools.

A robust HRIS can manage employee data, track hours, and monitor payroll, all in one platform. This ensures accurate time tracking for non-exempt employees and prevents payroll errors, keeping everybody on the same page. “There are a lot of tools out there, and Lattice has one that helps employers navigate through that,” Baer said. 

3. Train HR and managers.

HR leaders and managers must always be aware of what’s involved in classifying workers and understand the implications of misclassification. Those lessons should include how to handle overtime scheduling for non-exempt employees and how to balance workloads for exempt employees to avoid burnout. 

“Managers need to know the laws, they need to know the reasons behind them. They need to know the risk,” Ego said. “That’s a piece that’s often missed.” 

4. Develop policies for both classifications.

Creating clear policies regarding work hours for salaried employees and overtime rules for non-exempt employees will pay off. Your employee handbook should include eligibility requirements for exempt and non-exempt workers, the process for getting overtime approved, and recordkeeping requirements, Platt advised. 

Platt acknowledged that the work required to stay abreast of employee classification and other HR issues can feel like a lot. “But it really is an opportunity for HR leaders to be in the foreground of explaining this, explaining the importance of this from both a risk management standpoint as well as a best practice for building an organization where people are fairly compensated,” she said. “That’s how you make a difference.” 

Streamlining HR Operations With Lattice

Organizations and HR professionals must stay on top of changing local, state, and federal laws while ensuring their current practices remain in compliance. With the right policies and procedures in place, it’s possible. 

“You can do this,” Pardo said. “Start with the job description, educate your team, and find a way to make sure you can keep on top of the laws and what’s going on to remain compliant year after year.” 

The right tools can help. If you’re ready to make a difference for your organization by streamlining operations with a customizable solution that helps you manage your employee data accurately and securely, schedule a demo of Lattice HRIS.

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The information provided in this article is for general informational purposes only and does not constitute legal advice.