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Exempt vs. Non-exempt Employees

Updated on July 4, 2013
ChrisMcDade8 profile image

Christine McDade is a Human Resources professional (PHR & SHRM-CP) with over 18 years in the public sector.

Christine McDade is an experienced human resources manager.

It is important to correctly classify employees to either the exempt or non-exempt status.
It is important to correctly classify employees to either the exempt or non-exempt status. | Source

Exempt vs. Non-exempt Employees in the Workplace

The Fair Labor Standards Act (FLSA) classifies employees into two categories, exempt or non-exempt. Based on the kind of work that is performed, jobs are classified in a category which determines how a person is paid. Employees perform the tasks as assigned to their job description. The FLSA determines from these tasks whether employees are to be paid hourly, for all time work is performed, or by salary, regardless of the number of work hours needed to do the job. Sometimes, employees hold resentment toward their coworker who have the other classification due to the manner in which the other is paid. This resentment is usually a result of misunderstanding of what the classifications represent. Because classifying employees correctly is of paramount importance to an employer, knowing how FLSA classifies the positions will eliminate uncertainty for both employees and management.

Much has been written about FDR's presidency.  In 1938, he passed the FLSA, landmark legislation that affected how the workplace classifies workers.
Much has been written about FDR's presidency. In 1938, he passed the FLSA, landmark legislation that affected how the workplace classifies workers. | Source

History of FLSA

The Fair Labor Standards Act (FLSA) was signed into law in 1938 by President Franklin Delano Roosevelt. In a nation which had limited regulations on the workplace, and few employee rights for American workers, this landmark legislation set a new minimum wage (25 cents/hour), enacted significant child labor restrictions and set a weekly maximum hours standard. As indicated on the DOL website, www.dol.gov, the 32nd President of the United States faced much opposition to getting this important legislation passed. In fact, it was a campaign topic in 1936 as Democrats hoped to set wage/hour laws and implement higher hourly wages. As the President declared to a reporter about the matter:

"Something has to be done about the elimination of child labor and long hours and starvation wages."

-FRANKLIN D. ROOSEVELT

Public Papers and Addresses, Vol. V

New York, Random House, 1936), pp. 624-25.

President Roosevelt was finally able to get the legislation passed but not without a fight from oponents and numerous revisions to the original draft. In addition, the FLSA has been modified many times over the years since its implementation.

Classifications as Defined by FLSA

FLSA recognizes two classifications for the basis as to how the workers will be paid for the work performed. Consider the following:

  • Non-exempt - Non-exempt employees are generally referred to as hourly employees because they are to be paid for all hours worked. The law recognizes that any hours worked over forty in a workweek must be paid at a rate of 1 1/2 times their regular pay rate. This overtime rate gets applied to all hours worked above forty hours.
  • Exempt - Exempt employees are exempt from overtime due to the level of responsibilities they have in the performance of their jobs. Generally, exempt employees are expected to work as many hours as it takes to get the work done. While non-exempt employees receive overtime compensation for hours worked over forty hours in a week, exempt employees may work additional hours over forty without additional compensation. Decision making authority is usually higher for exempt employees. Sometimes referred to as salaried employees, these employees are exempt to the overtime laws as dictated by FLSA.

It is crucial for employers to properly classify employees for the purposes of appropriate compensation. Employees who are non-exempt must be paid for all time worked. Supervisors must monitor schedules to assure that employees are not working outside of their scheduled time. For example, sitting at their desks while eating lunch can be compensable time for non-exempt employees if they are performing any work at all. Answering emails, the telephone, etc., while they are at their desk eating lunch will be compensable time. Since there are many different scenarios to consider, employers will want to seek advice from their Human Resources Department and legal counsel to ensure that jobs are classified appropriately to FLSA requirements.

Stocking shelves in preparation for the Thanksgiving holiday or a forecasted hurricane will cause grocery stores to work employees more hours to meet the demand of the local consumers.
Stocking shelves in preparation for the Thanksgiving holiday or a forecasted hurricane will cause grocery stores to work employees more hours to meet the demand of the local consumers. | Source

Why Employees Like to Be Classified as Non-exempt

When asking employees which classification they would prefer, some will not hesitate to say the "non-exempt" status. These employees certainly benefit from the overtime rate that is 1 1/2 times their regular hourly rate. Paychecks that detail higher amounts due to extra time worked in a workweek are appreciated by the employees. For example, special projects that require extra working hours will be compensated at a higher wage. These fatter paychecks come in handy for families who can use a little extra in their household budgets. Working all of the extra hours does not seem so bad to the employee who know they are going to reap a larger paycheck than normal. Overtime pay can really come in handy for upcoming vacations, the holiday season purchases and paying off a debt that is draining that normal pay amount. In fact, for some non-exempt employees who regularly work ovetime, they may become accustomed to the higher pay and consider it as normal compensation because of the frequency in which it is earned. The idea that the non-exempt employee can bring home more money is motivation for a lot of people. For some employees, they may refuse a promotion that would change their classification to exempt because they know they can make a lot of overtime pay while in a non-exempt status.

Why an Employee Would Prefer the Exempt Classification

While the extra pay for hours worked is something that non-exempt employees work hard to achieve, many employees prefer the exempt or salaried status. As an exempt employee, one does not have to account for their time in the same manner as a non-exempt employee. They are paid the same salary no matter how many hours they work in a workweek. In general, salaried employees are paid more than their non-exempt co-workers. Furthermore, salaried employees have generally more flexibility with their schedules, although they are still expected to keep a schedule as designated by their management. This flexibility can be helpful on a day when there might be a son or daughter's school event that needs the employee to leave work early. Instead of making up the time away from the office in a manner that is hour for hour, an exempt employee would not be expected to use personal leave time such as vacation leave to attend the event. In this example, the exempt employee might only work a six hour day instead of an eight hour day.

Exempt employees are often supervisors and managers who have decision making authority at a higher level than those in the non-exempt positions. In order to be considered exempt from the overtime government requirements, the employer must be sure that the employee fits the narrow definition of exempt.

Job Duties Determine the Classification, Not the Title

Whether an employee prefers one classification over another is irrelevant because a job will be classified according to the tasks and duties of the job. A title, for example, does not necessarily designate a position to be of a certain classification. There are managers in the workplace who have very little discretionary decision making and might not meet the narrow definition that makes a position exempt from overtime. Employers must be sure to look at the tasks as described accurately in the job description to determine if the employee is performing a job that should be exempt from overtime.

Some Closing Thoughts

FLSA has been around for a long time in the American workplace. Employers must continue to properly exempt from overtime only those positions that fit the definition as described by the Department of Labor. Employees will from time to time question their classification as compared to their co-workers. It is not uncommon for there to be some misunderstanding as to why there are differences in the jobs that make up a work environment. However, management will be wise to seek legal guidance or assistance from Human Resources for those situations when the exemption to overtime is unclear for a specific position. Not paying a non-exempt employee for all hours worked due to misclassifying his/her position can be a costly problem for an employer to fix.

Exempt vs. Non-Exempt

Is your position classified as exempt or non-exempt?

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