If you\u2019re a small business owner or hiring manager, you\u2019ve likely heard the terms \u201cexempt\u201d and \u201cnon-exempt\u201d employees. These classifications come from the Fair Labor Standards Act (FLSA), the federal law that establishes minimum wage and overtime requirements for most workers.<\/p>\n
In simple terms, non-exempt employees<\/strong> must<\/em> be paid overtime (at least time-and-a-half) for all hours worked over 40 in a workweek, whereas exempt employees<\/strong> are exempt<\/em> from overtime pay (they do not receive extra pay for extra hours). Properly classifying your team matters because it determines who is entitled to overtime pay and protects your business from legal trouble. In fact, businesses must<\/em> properly classify employees as exempt or non-exempt to comply with the FLSA . Misclassification can lead to lawsuits, government fines, back-pay of wages, and damage to your reputation. Don\u2019t worry \u2013 this post will walk you through the basics of FLSA classification, so you can get it right.<\/p>\n The FLSA requires that most employees be paid at least the federal minimum wage for all hours worked, plus overtime pay for hours over 40 per week. However, the law carves out \u201cwhite-collar\u201d exemptions for certain<\/span> executive, administrative, professional, outside sales, and computer-related employees . Employees who fall under these categories and meet specific criteria do not <\/span>have to receive overtime pay. Every other employee is considered non-exempt and must<\/em> get overtime when they work extra hours.<\/p>\n \u00a0<\/p>\n Getting it right ensures your employees are paid fairly and legally. If you classify someone as exempt (salaried, no overtime) when they should be non-exempt, you could end up owing them a lot of back overtime wages and penalties down the line. On the other hand, classifying correctly helps you budget labor costs and avoid compliance issues. For small businesses operating on thin margins, surprises in the form of an unexpected overtime lawsuit can be devastating. Proper classification also builds trust with your employees \u2013 they\u2019ll know you are following the law and respecting their rights. In short, classifying employees correctly under the FLSA is both a legal requirement and a smart business practice to avoid fines and foster a fair workplace .<\/p>\n \u00a0<\/p>\n Under the FLSA, not all salaried employees are exempt<\/strong>, and not all hourly workers are non-exempt \u2013 it comes down to specific tests. To legally classify an employee as exempt (overtime not<\/em> required), three key criteria g<\/span>enerally must be met<\/p>\n The employee must be paid on a salary basis (a fixed, predetermined amount each pay period that isn\u2019t reduced based on hours or work quality). In other words, true salaried employees receive their full salary for any week in which they do any work, regardless of the number of hours worked. If you dock their pay for working less or performing poorly, they likely fail this test. (Outside salespeople and certain professionals like doctors or teachers are exceptions who don\u2019t need to be paid on a salary basis.) Being paid hourly typically means an employee is non-exempt, but paying a salary alone isn\u2019t enough \u2013 it\u2019s just the first part of the test.<\/p>\n <\/p>\n The salary must meet a minimum amount set by federal law. As of now, the FLSA regulations require at least $684 per week (equivalent to $35,568 per year) for most exempt employees . If an employee\u2019s salary is below that threshold, they generally cannot be classified as exempt, no matter what their job duties are. (This threshold doesn\u2019t apply to outside sales or certain professions like law and med<\/span>icine.) Keep in mind some states have higher salary minimums for exemption \u2013 and you must follow the stricter standard if state law is more generous to employees . Always ensure your exempt employees\u2019 pay meets the current federal (and applicable state) salary requirements.<\/p>\n <\/p>\n Meeting the two salary tests alone isn\u2019t enough; the employee\u2019s primary job duties <\/span>must fit one of the exemption categories defined in the law.<\/p>\n The common FLSA exemptions include:<\/p>\n Executive Exemption<\/a>:<\/strong> The employee\u2019s primary duty is managing a business (or a department\/subdivision of the business), they regularly supervise two or more full-time employees, and they have genuine input into hiring or firing decisions. For example, a store manage<\/span>r who runs day-to-day operations and oversees staff might qualify as exempt.<\/p>\n<\/li>\n Administrative Exemption<\/a>:<\/strong> The employee\u2019s primary dut<\/span>y is performing office or non-manual work directly related to the company\u2019s management or general business operations, and they ex<\/span>ercise independent judgment on significant matters . An example could be an HR coordinator or accountant who has to make important decisions or recommendations as part of their job.<\/p>\n<\/li>\n Professional Exemption<\/a>:<\/strong> The job requires advanced knowledge in a field of science or learning (usually evidenced by a specialized degree) or involves creative, original talent. Examples are lawyers, engineers, certified public accountants, or writers and artists . They use specialized knowledge or creative skills rather than performing routine mental, manual, or physical work.<\/p>\n<\/li>\nWhat Does the FLSA Require and Why Classification Matters<\/h2>\n
Why does this classification matter so much?<\/h3>\n
Key Criteria: How to Determine Exempt vs. Non-Exempt Status<\/h2>\n
Salary Basis Test<\/strong><\/h3>\n
Salary Level Test<\/strong><\/h3>\n
Job Duties Test<\/strong><\/h3>\n
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