In payroll, the matter of exempt vs. nonexempt is critical. For example, imagine a company with 20 employees. For simplicity’s sake, the owner makes everyone a salaried employee. It seems like a great idea, right? Everyone knows exactly how much each paycheck will be and the owner never has to worry about tracking and calculating hours.
The problem is that by making everyone salaried and ignoring the actual number of hours worked, the business owner may be cheating people out of money owed for overtime. If those employees meet the definition of nonexempt workers, that could come back to bite the owner in a huge way—legally and financially.
The key difference between nonexempt and exempt employees is that you have to pay nonexempt employees overtime rates when they work more than 40 hours in a work week. Find out more below.
Exempt vs. Nonexempt Employees: The Differences
Exempt employees are those that are not covered by certain provisions of the Fair Labor Standards Act. Specifically, these employees are exempt from the overtime rules. That means they can be legally paid an agreed-upon salary that typically doesn’t change no matter how many hours they work.
Nonexempt employees are anyone who doesn’t qualify as an exempt worker. These employees must be compensated at overtime rates for any hours worked within a workweek that exceed forty. This is true whether the employee is paid an hourly wage or a salary.
Some people mistakenly think that all salaried individuals are exempt and all hourly workers are nonexempt. That’s actually not true. It’s also not enough to give someone a job title that sounds like one an exempt worker would have. What makes someone exempt isn’t how they’re paid but various factors related to their relationship with the employer and the type of work they do.
Staying up-to-date with HR and payroll laws can be challenging, especially when there’s so much incorrect information online. Find out about some labor law requirements businesses should know and contact America’s Back Office if you need help keeping up with laws for your company.
Who Is an Exempt Employee?
According to the U.S. Department of Labor, exempt employees are those that fill qualified executive, administrative, professional, or outside sales positions. To qualify as an exempt employee in these positions, the person must meet the criteria below.
Executive
- Is paid as a salaried employee
- Makes $684 a week or more
- Engages in management of a business or department
- Oversees work of two or more full-time employees
- Has authority or ability to consult on hiring and firing
Administrative
- Paid as a salaried employee
- Makes $684 a week or more
- Engages in duties of an office or administrative nature related to the management or operation of the business
- Has the authority to exercise judgment and discretion in significant business matters
Professionals
- Is paid as a salaried employee
- Makes $684 a week or more
- Is either a learned professional or a creative professional
Learned professionals typically require advanced degrees or certifications in fields of science or learning. Examples might include nurses, teachers, lawyers, and accountants.
Creative professionals typically engage in creative endeavors requiring skills and talent, such as graphic artists.
Computer Employees
- Makes $684 a week or $27.63 per hour or more
- Works as a skilled employee in the computer field in positions such as computer programmer, systems analyst, or software engineer
- Common duties meet certain requirements, including design and development of systems
Outside Sales Employees
- Works primarily to make sales or obtain orders or contracts
- Typically works outside of the company’s offices or another place of business
It’s important to note that some states have their own guidelines about exempt vs. nonexempt employees. While states can’t override the federal requirements, they can add to them, so when you’re categorizing your employees, make sure you’re aware of state laws.
If you’re looking to save time when processing payroll or ensure your processes comply with federal, state, and local regulations, America’s Back Office can help. Reach out to find out more about what our PEO can do for your business.
Are There Exceptions to Exempt Categories?
Yes. These exemptions are designed to apply to white-collar workers. They don’t apply to certain blue-collar workers or skilled laborers, including construction workers, carpenters, mechanics, and electricians, if those people aren’t engaged in qualified management tasks. First responders, including police, paramedics, and firefighters, are also not exempt workers.
How America’s Back Office Can Help
Only 3% of PEO companies are CPEOs, and America’s Back Office is. As a professional employer organization, we’re an outsourcing firm that can help you maximize efficiencies and save money on HR processes—all while staying compliant with labor laws and regulations. That includes ensuring you’re on the right side of the exempt vs. nonexempt categorization for your workers. Contact us today to find out more.
