If you’re a new employer or you’re creating a new job position in your organization, you might be wondering how to categorize employees’ salary status. Let’s take a look at what it means to be a salary exempt employee and the differences between a nonexempt and an exempt employee. Exempt or nonexempt employees: What’s the difference? The terms “salary exempt employees” and “nonexempt employees” come from the Fair Labor Standards Act (FLSA). In short, nonexempt employees are covered by provisions in the FLSA, and exempt employees are not covered.
Most jobs in the U.S. are governed by the FLSA. This federal law establishes the minimum wage, overtime pay eligibility, record keeping, and youth employment standards. It impacts employees in the federal, state, and local governments and in the private sector. Nonexempt employees are covered by the FLSA and are entitled to the following workplace rights:
Record keeping: Accurate and detailed attendance and payroll records of hours worked and wages paid by their employers.
For minors, restrictions exist regarding types of work they can perform, how many hours a day and week they may work, and other health and safety-related standards.
An exempt employee is not entitled to the rights outlined in the Fair Labor Standards Act. To be classified as exempt, the employee must meet all 3 of the following tests:
According to the FLSA, a U.S. employee must be paid a minimum of $35,568 per year ($684 per week) to qualify for the exempt category. However, some states have higher minimum amounts, which they set based on a multiple of their minimum wage.
For example, the State of Washington has a statewide minimum hourly workers’ wage of $15.74 per hour. So the minimum gross annual salary an exempt employee must be paid there is $65,484.
Besides the minimum salary amount, all exempt employees must be paid on a salary basis. This means they must receive a guaranteed minimum salary from their employer each week regardless of the number of hours they work, as long as they work some hours.
However, the employee’s entire salary does not have to be guaranteed for them to be exempt. For example, a salesperson might earn a guaranteed “base” salary and commissions based on sales performance. The salesperson would still be considered exempt if the employer consistently pays the same base salary.
On the other hand, hourly employees who earn a different amount of money for work time depending on how many hours they work are not exempt.
As an employer, paying your employees on a salary basis generally means keeping the base salary you pay constant. That’s the case regardless of the quality or quantity of their work.
So, you will still need to pay a full salary if an employee performs less work than usual because of a reason that is under your control, such as a slow business month or a temporary business closure.
There are, however, a few exceptions to this rule:
Perhaps you have an employee to whom you pay more than the minimum salary required for an exempt employee in your state, and you pay on a salary basis. That employee might be exempt, but only if their responsibilities are “exempt duties.”
The FLSA includes these 5 job duties as exempt:
Here are the requirements for executive exempt job duties:
The FLSA refers to people performing exempt professional job duties as part of the “learned professions.” It means that the work they perform is intellectual and requires specialized education.
It also means that the job depends upon the professional to exercise sound judgment and make determinations based on their expertise.
In general, the following jobs are considered exempt professional employees:
According to the FLSA, an employee qualifies for the outside sales exemption if they meet the following criteria:
The FLSA also considers work incidental to or furthering an outside sales employee’s sales effort as exempt work. This could include writing sales reports, attending sales conferences, planning itineraries, managing promotional activities, and other ancillary duties.
A contentious issue among many employers is whether drivers involved in sales can be considered exempt employees.
Drivers may be exempt only if they have a primary duty of making sales. In this case, the loading, driving, and delivering will be regarded as exempt work because they are incidental to the employee’s outside sales or solicitations.
The term “computer-related” in FLSA exemptions does not include every employee interacting with a computer in the workplace. Instead, the FLSA sets separate requirementsthat must make up a significant portion of an employee’s job for them to be exempted.
An exempt computer professional’s primary duty must involve working on or with computers beyond simply using them. Below are some of the job duties that would qualify as exempt computer-related work:
This is the category that’s the trickiest to define. Basically, an administrative-exempt employee is someone who “keeps the business running.” Think of administrative employees as those who provide support to the operational workers. For example: human resources employees, payroll administration managers, and the staff who manage your records, accounting, public relations, budgeting, and marketing.
According to FLSA regulations, exempt administrative work job duties must:
In other words, these are not clerical or secretarial employees. To be considered administratively exempt, the employee must be allowed to make important decisions as a regular part of their job.
Nonexempt employees have rights under the FLSA, including the right to be paid minimum wage and receive overtime pay. But exempt employees do not have those rights. The only real “right” that the exempt employee has under the FLSA is to be paid their guaranteed minimum salary every week they perform some work.
However, this doesn’t mean exempt workers have no rights. They are only exempt from FLSA protections, not all worker protection laws.
Regardless of exempt status, every salaried employee has the right to a safe and healthy work environment, equal employment opportunities and nondiscrimination, and the rights provided under the Family and Medical Leave Act.
And like all employers, you are still bound by child labor laws regardless of your employees’ exempt status.
Most employers expect their exempt employees to work the number of hours necessary to get their jobs done. It doesn’t matter if that takes more or fewer than 40 hours per week. Even if your exempt employee works 70 hours a week, you are still only required to pay them their standard base salary.
However, just because employment laws can't prohibit you from requiring an exempt employee to work more than 40 hours a week doesn’t mean it’s a good idea. If you have an employee who regularly puts in extra hours just to get the minimum amount of work done, you might want to reconsider your expectations.
If the job is impossible to get done in about 40 hours a week, you’re likely looking at increased rates of employee burnout and turnover. It'll help to provide support for a healthier work-life balance going forward.
This article has been updated.