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Exempt vs. Non-Exempt Employment: An Overview

by Vinay Jain Exempt vs. Non-Exempt Employment: An Overview

When you’re hiring an employee, you have to determine whether he or she is “exempt” or “non-exempt.” Getting it right is important to avoiding claims and penalties for unpaid wages.

Let’s look at the difference between “exempt” and “non-exempt” employees.

Exempt from what?

The Fair Labor Standards Act or FLSA is the federal law that, among other things, establishes minimum wage and overtime requirements, if this is not clear for you, you read this comprehensive guide on overtime.

“Exempt” employees are not subject to those requirements but “non-exempt” employees are. The requirements include:

  • That the employee is paid the federal minimum wage, which as of the date of this writing is $7.25 per hour.
  • That the employee is paid 1.5 times their standard wage for hours worked in excess of 40 hours per week.

It’s important to note that individual states may have minimum wage requirements that are higher than those set by the federal government, as well as additional wage and hour laws. Be sure to check the laws of your state.

What makes an employee exempt

Exempt employees must be paid a salary rather than an hourly wage. They generally consist of executives, supervisors, professionals, outside sales people and certain computer employees. There are three general categories of exempt employees:

1. Executive

  • Someone who supervises two or more other employees
  • Who is a manager
  • Who has input into hiring, firing, assignments, etc.

2. Professional

  • Includes lawyers, doctors, teachers, architects, registered nurses or other people who work jobs requiring a high degree of specialized training. This does not include skilled trades. It does, however, include creative professionals like writers and musicians.

3. Administrative

  • Includes people who do non-manual or office work directly related to management or business administration. This is one of the more nebulous categories, but as a rule a person has to exercise a lot of independent judgment and discretion to fall under the administrative exception. A typical administrative assistant or an office worker who executes established processes won’t qualify.

There is also a salary requirement. To be eligible for exemption, employees must be paid at least $23,600 per year (or $455 per week) and paid on a salary basis rather than by the hour. But, not all salaried employees paid above this threshold are exempt: they must still fall into one of the above categories.

Why it’s important to get it right

Worker misclassification can carry serious financial consequences. You can liable for back wages, taxes, interest penalties, and legal costs. And, the auditing authority can look back several years, compounding the liability.

Remember, the federal laws are only a baseline. Your state may have stricter requirements that you’re required to meet so make sure to contact Personal Injury Attorney Jackson Hole WY.

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Vinay Jain

As Chief Legal Officer, Vinay serves as Shake's general counsel, is responsible for the company's legal contracts and content, and leads efforts to educate consumers and small businesses about the law.

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