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Exempt vs. non-exempt employees: Navigating worker classification

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Understanding the distinction between exempt and non-exempt employees is crucial in navigating the complexities of labor laws and complying with the Fair Labor Standards Act (FLSA). Under federal law, employees can be either exempt or non-exempt. Classifying employees correctly is critical because it influences which set of FLSA pay requirements apply.

What’s the difference between exempt and non-exempt workers?

Typically, exempt employees occupy positions that are managerial, professional or administrative in nature. These roles include executives who manage a business or a department, professionals with advanced degrees or specialized knowledge (such as lawyers, doctors and accountants) and administrative roles like HR manager or marketing director. Such positions often require a salary that meets or exceeds a specific threshold rather than hourly pay.

Non-exempt employees, on the other hand, often hold jobs that require them to follow set schedules and duties with less direct influence over company operations. This could include roles such as customer service representatives, clerical staff, technicians and laborers. These workers are usually paid hourly and are eligible for overtime pay and minimum wage protections due to the nature and hours of their work.

Exempt Employee vs. Non-Exempt Employee Classification

As a general rule of thumb, employees are non-exempt unless they meet the FLSA criteria for exempt status. Exemptions are based on the employee’s job duties, meaning only “white-collar” workers are eligible for exemptions. “Blue-collar” workers (those who perform work that involves repetitive operations with their hands, physical skill or energy) cannot be exempt.

Here’s a breakdown of the exemptions as given by the U.S. Department of Labor (DOL).

Executive Exemption

  • The employee’s main responsibility is overseeing the organization or a department or subdivision that’s officially recognized within the organization.
  • The employee supervises at least two full-time employees (or their equivalent).
  • The employee has the authority to make hiring and firing decisions, or their recommendations on employment changes carry significant weight.

Administrative Exemption

  • The employee’s primary duties involve performing office or non-manual tasks linked to business operations or management.
  • These primary duties cause them to regularly exercise discretion and independent judgment in matters of significance.

Professional Exemption

  • The employee’s primary duties require advanced knowledge in a field of science or specialized learning.
  • The employee’s work is primarily intellectual and requires discretion and judgment.
  • The advanced knowledge required for the role is typically acquired through a prolonged educational process and in a field of science or learning.

Computer Employee Exemption

  • The employee works in the computer field as a computer systems analyst, programmer, software engineer or similar role.
  • The employee’s primary duties involve the application of systems analysis techniques and procedures, the development and modification of computer systems or programs and other related tasks involving operating system software.

Outside Sales Exemption

  • The employee’s primary duty is making sales or obtaining contracts for services or facility use that the client or customer pays for.
  • The employee customarily and regularly works away from the employer’s business location.

Highly Compensated Employees

  • The employee performs office or non-manual work and receives a compensation of at least $107,432 a year.
  • The employee customarily performs at least one of the duties of an exempt executive, administrative or professional employee.

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Paying Non-Exempt vs. Exempt Employees

Navigating the pay requirements for non-exempt and exempt employees is a fundamental aspect of compliance with the Fair Labor Standards Act (FLSA). These regulations are designed to ensure that employees receive fair compensation for the entirety of their contributions to the workplace. For employers, understanding and implementing these requirements is essential to creating a work environment that is both compliant and fair.

Wage and Overtime Pay Requirements for Non-Exempt Employees

Under the FLSA, non-exempt employees are entitled to a minimum wage of at least $7.25 an hour. If they work more than 40 hours in a workweek, they are also entitled to receive overtime pay at the rate of one and one-half times the regular rate of pay for the time they work in excess of 40 hours.

To help ensure that employee pay is correctly administered, it’s vital for employers to keep records of employee pay and time records. The hours worked include all times when an employer requires a worker to be on the premises, on duty or at a prescribed workplace.

Salary Requirements for Exempt Employees

Exempt employees typically receive a salary and must usually be paid a minimum of $684 per week. Employers may use nondiscretionary bonuses and incentive payments (such as commissions) to satisfy up to 10% of the mandated salary level.

These salary requirements are different for employees who fall into either the outside sales or computer employee exemptions. Employers may compensate computer employees with a salary or on a fee basis of at least $684 per week or an hourly basis of at least $27.63 per hour. For outside sales employees, these salary requirements do not apply; there is no minimum salary or fee basis.

Importantly, the DOL says employers must typically pay exempt salaried employees the full salary amount if they perform any work during the workweek. Certain deductions are allowed, such as for unpaid leave taken under the Family and Medical Leave Act (FMLA) or when an employee misses one or more full days for personal reasons other than sickness or disability.

Disputes Over Exempt and Non-Exempt Employees

Employers may face fines for failing to provide required wages or salaries. Such disputes often involve exempt and non-exempt employee classification requirements.

For example, the DOL says a Wing Stop franchisee was fined $62,000 for illegally deducting uniform, training and background check costs, along with cash register shortages, from employees. This resulted in minimum wage violations because paycheck deductions caused some employees’ hourly rates to fall below $7.25 per hour. Additionally, overtime violations occurred because some deductions decreased the rate of pay for workweeks in which employees worked overtime hours.

Penalties against employers that fail to pay overtime to non-exempt employees are also common. For example, the DOL fined a construction company $305,000 in back wages and damages for failing to keep accurate records of hours and failing to pay overtime. Specifically, the company was not compensating workers for pre- and post-shift work and work-related travel time.

Wage disputes may also arise when non-exempt employees check work-related emails and phone calls outside of work hours. According to the National Law Review, employees are engaged in compensable work when employers permit this practice, meaning the requirements for time tracking and pay go into effect.

State Laws Also Impact Pay Requirements

While federal law sets the minimum wage for non-exempt employees at $7.25 per hour, many states have additional labor laws with higher minimum wage requirements.

According to the National Conference of State Legislatures, 30 states and Washington D.C. have adopted minimum wage requirements that are higher than the federal standard. Two states – Georgia and Wyoming – have a minimum wage that is lower than $7.25. When facing different state and federal minimum wage requirements, employers should comply with the higher rate in order to satisfy both requirements.

However, this situation can become more complicated when a company is located in one state but employees work in another – a scenario that has become increasingly common with the rise of remote work.

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More Changes May Be Coming

Worker classification and minimum wage requirements are already hot topics. Now, new legislation may be on the way at both the federal and state levels.

Many states have been introducing new minimum wage requirements. According to the Economic Policy Institute, 22 states increased their minimum wage, with the new pay requirements going into effect on January 1, 2024. With these recent changes, seven states have a minimum wage that is at or above $15 per hour.

At the federal level, the DOL is considering a new rule that would increase the salary threshold for exempt employees and create an automatic updating mechanism for future increases.

Navigate the Complexities of Worker Classification with Confidence

In the dynamic field of HR and employment law, correctly classifying employees as exempt or non-exempt is more than a compliance requirement—it’s a commitment to upholding fair workplace standards. As legislative reforms and state laws evolve, the task of staying abreast of these changes and understanding their implications on your business operations can be difficult.

If your HR team is struggling with employee payroll, time management or regulatory compliance, Higginbotham’s HR Services team can help. Our HR outsourcing and consulting specialists can offer support to help your business navigate these ever-changing yet essential functions. Get in touch with a member of our HR team today.

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