Exempt employees are those employees who are exempted or refrained from receiving the overtime payment and receive a monthly payment. On the other hand, non-exempt employees are those who receive their payments according to the number of hours or days of their workweek. Both the payment system of the exempt and the non-exempt employees are set by FLSA (Fair Labor Standards Act). The article made an attempt to elaborate on the exempt vs non-Exempt Employees.
Exempt vs. Non-Exempt Employees – What Are the Differences?
These two types of employment have differences in their types and features which make them unique in their own ways. We have discussed major differences below.
Exempt vs. Non-Exempt employee – Differences in Definition
The exempt employees are authorized to earn their salary per month. These employees work in specific areas such as in administrative, professional, executive, and computer or in outside sales. The Department of Labor (DOL) conducts the duties tests that are carried out by the employers in order to identify the employees who fulfill the criteria of being exempt. Even though, the exempt employees are not eligible for overtime pays but they may have to compensate the employees for the extra hours by providing them with benefit packages. The exempt employees are referred to as “white collar workers.”
The non-exempt employees are paid according to the number of hours or a minimum amount set by the DOL. The non-exempt employees are eligible to receive overtime pay when they work for more than 40 hours per week. According to the rules of FLSA, if the non-exempt employees are not paid by the number of hours they work, then their hourly payment can be paid by dividing the total compensation earned with the total hours worked. Benefits such as vacation, sick leaves or leisure offs should not be included for these employees. Some of the non-exempt employees include labors, interns, freelancers, contractors, retail associates etc. The non-exempt employees are referred to as “blue collar workers.”
Law regarding Exempt vs. Non-Exempt employees
The main difference between the exempt and the non- exempt employees is their type of income. In order to be qualified as an exempt employee, there are certain criteria that must be met. To identify that whether an employee is exempt or non-exempt, an assessment can be performed on multiple factors such as:
- The amount of money earned
- The types of jobs the employees do
- Their specific responsibilities.
The exempt employees are not handled by the Fair Labor Standards Act. Most of the employees work in upper positions such as, executive positions. Exempt employees often work for more than 40-hours per week. It is also beneficial to the employees as it does not decrease the number of hours for the salary earned.
In contrast, the non-exempt employees must be paid their minimum wage plus the overtime payment if they work for more than 40 hours every week. The rate of overtime must be paid at 1.5 times their regular paying rate. The state labor laws must be consulted in places where the non-exempt employees are working for additional requirements. These employees are considered as non-exempt employees unless they meet the requirements in order to be exempt.
What are the Requirements of Being Exempt vs Non-Exempt Employees?
An exempt employee must earn a minimum amount of $455 every week. They should receive the same amount of salary regardless of the number of hours worked. They should work in positions such as administrative, executive and professional duties. There are three major tests that the employers can take in order to classify the employees as exempt:
- Salary level test: An employee must earn more than $35,568 per year in order to be exempt, but may not be guaranteed as an exempt employee.
- Salary basis test: An employee who receives a compensation of a certain amount, regardless of the number of hours they work may be considered as exempt employees.
- Duties test: Any employee who meets the first two requirements must also meet the duties test mentioned below:
- Exempt executive duties: The employees will observe two or more employees as their regular job.
- Exempt professional duties: The employees perform intellectual activities that need a special education and training.
- Exempt administrative duties: The employee performs operations that support any specific situations and includes the use of opinions and viewpoints.
A non-exempt employee should work for 40 hours per week in order to receive a regular payment. These employees are authorized to earn not less than $7.25 per hour. The FLSA does not require any payment for weekends, holidays, or sick leaves, unless worked on those days. The non-exempt will not receive any additional benefits such as sick leaves and vacations. In cases where an employee is administered to both state and federal state laws, the employees are authorized to higher minimum wages.
Examples of Exempt vs. Non-Exempt employees
Exempt administrative employees provide services in order to provide services to the staffs.
Non-exempt employees follow the directions of the higher authorities and do not have specific positions like the exempt employees. The examples include contractors, interns, freelancers etc.
Benefits: Exempt Employees vs. Non-Exempt Employees
Many people wonder if it’s best to be an exempt or non-exempt worker. Each type has a set of benefits and disadvantages. Learning about them is important to help make informed decisions career-wise.
Below are the benefits of being an exempt and non-exempt employee:
- Salary security: The exempt employees are more secure and have a stable income apart from the non-exempt employees. Moreover, they have a fixed rate of income and do not have to work for a fixed period of time. Whenever they are done with their job, they get paid.
- Eligibility for certain benefits: The exempt employees are provided with certain kinds of benefits depending on their organization. For instance, many organizations would provide accommodation along with other services like sick leave, holidays and leave of absence.
- Flexibility in roles and job duties: The responsibilities of the non-exempt employees are flexible and may range from administrative to managerial. It increases the potential in between the employers and the employees and enhances the productivity of the work.
- Incentive to work: When the employees are paid an overtime rate of 1.5x their hourly rate, they get motivated to strive hard for the organization that they are working in.
- Training: In 2022, the training industry in the United States allocated non-exempt employees with the highest training expenditure. Because their tasks undergo rapid changes, they obtain training for reskilling to keep up with technology and market trends. Exempt employees also enjoy paid training to perform new tasks excellently.
Drawbacks: Exempt Employees vs. Non-Exempt Employees
Below are the drawbacks of being an exempt and non-exempt employee.
- You cannot deduct pay for hours not worked: As an exempt employee receives a monthly payment, there payments cannot be deducted from the number of hours or days that they have not worked. As a result, they are paid with a certain amount whether they work every day or not.
- You might have to pay them more: Although the exempt employees are not paid overtime like the non-exempt employees, they are likely to take more money as they are experienced in their own fields. Their salaries may count to more than the amount of payment paid to the non-exempt employees.
3. They do not receive extra facilities: Non-exempt employees do not receive any extra benefits such as sick leaves, vacation or bonuses. They do not receive extra payments like the exempt employees. 4. Lack of freedom: Non-exempt employees do not get enough freedom as they cannot work according to their comfort. Although they receive overtime payment for their extra hours of work, they may feel demotivated and may not feel like working all the time.
For these reasons, employers develop attractive employee programs to boost the motivation of non-exempt employees and reduce turnover. They hold team-building activities and incentive schemes to show worker appreciation and promote loyalty. While exempt workers aren’t paid overtime, employers provide them with extra privileges and perks to stay in the company.
How Many Hours does an Exempt and Non-Exempt Employees Work?
An exempt employee will work in between 40 and 50 hours a week, although some employees may work for less than that.
Moreover, a non-exempt employee usually works for 40 hours per week. They are also entitled to overtime payment whenever they work for more than 40 hours, according to FLSA.
Employers invest in modern time management software to accurately track exempt and non-exempt worker hours. A reliable clock in clock out system saves time on manual tracking and ensures all employees receive the right pay for their total hours worked in a particular pay period. Moreover, using the right time tracker helps prevent payroll problems and promotes employer compliance with labor laws.
The Bottom Line
In this article on exempt vs. Non-Exempt employees, we have found that both the exempt and the non-exempt employees have their own advantages and disadvantages. Apart from that, it becomes easier for the organizations to hire the types of employees that they require for their organizations. It only saves time and costs, but also will help in terms of enhancing the productivity of the institution.
Related Reading:
Tamanna is working as a content writer at The Strategy Watch. She has recently completed her graduation from a reputed university in Bangladesh. Tamanna was immensely interested in knowing about leadership and has written about different kinds of leadership till now. She has gathered a vast amount of knowledge regarding the topic and is looking forward to work on more leadership related topics in future. Moreover, she is intended to dive deep into the different sectors of the business world and explore them.