What Is the Difference Between an Exempt and Non-Exempt Employee?

Tuesday, July 26, 2022

What Is the Difference Between an Exempt and Non-Exempt Employee?

Exempt and non-exempt employees refer to categories of workers protected under the Fair Labor Standards Act (FLSA). [1] The FLSA sets out the responsibility for employers to pay and treat their workers fairly. However, not all employees are covered under the act.

Difference Between Exempt And Non-Exempt Employee

‍The FLSA protects employees in several ways. It is a set of standards that establishes rules for areas like:

  • Minimum wage
  • Overtime pay/ Paid overtime / Overtime wages
  • Hours worked
  • Record-keeping
  • Child labour

The U.S. Department of Labor devised these rules to stop labour violations and other acts of worker exploitation. However, not all workers are protected under these laws. For example:

  • An exempt employee is not afforded the protection of the FLSA.  
  • A non-exempt employee is protected under the FLSA.

The main difference between these two categories are:

  • The level of payment
  • The duties an employee is asked to perform

Many employment litigation cases have shown that employers deliberately misclassify their employees to get around FLSA rules.

Businesses have an advantage if they assign employees an exempt status because they don't need to pay them a minimum wage. However, while an organisation might define a worker as an exempt employee, they don't make the final decision on these matters.

The U.S. Department of Labor ultimately regulates who gets defined as an exempt employee. Human resources teams should proactively ensure the workers are afforded FLSA protection. This process improves company culture and reduces the chance of facing a lawsuit.

As mentioned, there are situations where an employee is exempt from FLSA. However, this is the exception. The FLSA presumes that an employee is covered unless employers or their HR teams can prove otherwise.

How Are FLSA Exemptions Defined?

‍The FLSA has strictly defined criteria for who counts as an exempt employee.

To be exempt from FLSA, an employee must be:

  • Paid a weekly wage of $455 or above
  • Be paid a salaried wage (i.e., not on an hourly basis)
  • Perform exempt job duties

While these definitions seem straightforward, some complications can arise.

For example, an employee could receive a weekly wage above the $455 threshold. However, if their employer took deductions, they could dip below this amount. This scenario would leave the employee without the protection afforded to a non-exempt employee.

Exempt employees' salaries should guarantee them a minimum amount of weekly compensation, independent of whether they have work to do. For example, employees cannot be penalised for quiet periods.

Additionally, FLSA regulations suggest that employers should calculate pay by taking the annual salary and dividing it by the pay period. For example, a yearly salary of $40,000 could be divided by 12 (if paid monthly) or 52 (if paid weekly).

While how much the employee is paid per week and if they receive a salary has some complexity, it's generally straightforward to work out. However, the final part of the test — exempt job duties — is considerably more complicated.

Let's explore what exempt job duties mean in the context of FLSA labour law.

Exempt job duties

‍The Department of Labour primarily designed the FLSA framework to reduce labour violations that affect day-to-day manual work. In essence, employees who do higher-level work are not protected under this particular labour law.

Some examples of the type of work that is considered FLSA exempt are:

Management positions

Management jobs are typically exempt. But how they're defined under FLSA rules is rather strict. For example, exempt managers must have responsibility for at least two employees, independent contractors not included.

Additionally, supervising other workers does not count as management under FLSA rules. Exempt managers must perform duties like:

  • Selecting employees
  • Planning work
  • Setting wages for hourly employees

Learned professionals

Learned professionals are automatically considered FLSA exempt. These positions are defined as work that:

  • Is non-manual and directly related to business operations
  • Requires specialist education (i.e., a degree)
  • Requires employees to make sound judgments and decisions

While much of these classifications are clear-cut, many employment litigation cases involve the grey area of administration staff. This type of work requires intellectual capacity and concerns performing non-manual tasks directly related to business operations. However, some employers still attempt to designate these staff members as exempt.

What protections do non-exempt workers get? ‍

Employees receive certain protections once they meet FLSA criteria. Two of the primary protections are:

Overtime

If an employee works more than 40 hours per week, employees should pay overtime at a rate of time and a half their hourly wage.

Minimum wage

A non-exempt employee should get the federal minimum wage.

Exempt employees don't receive these protections. Their salary is governed by negotiation between them and their employer. Additionally, their employer can request that they work extra hours when required.

In these situations, an exempt employee doesn't have many options. If they feel they're being paid unfairly or overworked, their primary course of action is to seek new employment.

FLSA lawsuits are on the rise

‍FLSA employee litigation cases are increasing. Many of these lawsuits involved class action claims against employers. In 2021, workplace class action settlements doubled from $1.58 billion to $3.62 billion. [2]

HR teams should pay close attention to the FLSA regulations. In particular, they should take an active role in examining how their employees are classified. As the increases in cases show, many employers believe their workers are exempt. However, when it comes to the outcome of an FLSA lawsuit, the courts have a different option.

The consequences of losing a lawsuit are severe. Settlements and verdicts are frequently seven or eight figures, which are sums that could put their entire business at risk.

Conclusion

‍ One aspect of delivering a good workplace and employee experience [3] is eliminating labour violations. Employers and HR teams should strive to uphold workers' rights under FLSA. Failure to comply with these laws is frequently punished.

Additionally, the Department of Labor offers strong whistleblower protection. These rights encourage workers to come forward with complaints, safe in the knowledge that they won't be subject to retaliation by their employers.

Even a company culture that enforces worker silence is vulnerable to whistleblowing and potential investigation and legal actions. Employers are more aware of their rights these days, too. Employers should protect themselves from employer litigation by reviewing their practices and ensuring they are in compliance.

Via the Qualee app, available on iOS and Android, companies will get easy access to a trusted channel where employees can report incidents without worrying about their wellbeing and safety. Create a positive company culture with Qualee and sign up for our FREE Starter Plan today.

[1] https://www.dol.gov/agencies/whd/flsa
[2] https://www.forbes.com/sites/edwardsegal/2022/01/04/workplace-class-action-settlements-set-new-record-in-2021-report/
[3] https://www.qualee.com/blog/what-is-employee-experience-and-why-is-it-relevant-now

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