Exempt or non-exempt? Classifying employees

Unsure whether you have an exempt or non-exempt employee? Before you classify a role incorrectly, check the requirements for what it takes to legally be considered exempt. If you classify an employee incorrectly, you could be putting your business at risk.

Exempt Employee Definition 

The term “exempt employee” relates to any worker who is exempt from receiving overtime, regardless of the number of hours worked. But in order to qualify for this status, the role has to meet specific criteria:

  1. Minimum salaryIn order for an employee to be “exempt,” he or she must be paid at least $455/week (with the exception of an outside sales rep) and meet at least one of the allowable exemptions.
  2. Allowable exemptions: In addition to salary, an exempt employee must also meet at least one of the following exemptions:
    1. Executive exemption – Performs management duties and has the ability to hire, fire and promote staff.
    2. Administrative exemption – Primary duty includes the “exercise of discretion and independent judgment with respect to matters of significance.” Here’s a more detailed explanation of what that means.
    3. Professional exemption – Performs a job requiring advanced knowledge in a field of science, learning (typically a college degree is required), or a creative field.
    4. Computer employee exemption – Serves in a role that is highly skilled at computers. This fact sheet from the DOL has more information.
    5. Highly compensated employee exemption – Receives annual compensation of at least $100,000 annually and performs office or non-manual work.
    6. Outside sales exemption – Primary job responsibility is to make sales away from the employer’s place of business.
  3. White collar only: The FSLA indicates that exemptions are only available to jobs that are classifiable as “white collar.” “Blue collar” workers who perform manual labor and/or certain repetitive operations cannot be exempt employees.
  4. No first-responders: According to the FLSA, there are a few professions that cannot qualify for exempt status including police, firefighters, paramedics, and other first responders.
Non-Exempt Employee Definition

If a worker cannot meet the exemption criteria listed above, they are considered “non-exempt.” This means they must track hours worked and receive overtime pay for any hours worked in excess of 40 per week (8 hours/day in California).

Salaried employees and non-exempt status

Not all salaried employees are considered “exempt.”  A non-exempt employee can be paid on a regular salary basis each week, but that worker must track hours worked and be paid overtime whenever 40 hours per week are exceeded (8 hours/day in California).

Blue collar employees who receive a salary

The FLSA states that blue collar employees are always classified as non-exempt, even if a blue-collar worker receives a salary rather than an hourly rate of pay. Hours worked by blue-collar employees must be tracked so that wages paid reflect any overtime work.

Example: Jim is an electrician (non-exempt) who is paid a salary of $800/week. During the week of Christmas, Jim is asked to put in extra hours so a job can be completed before the end of the year. Jim works 10 hours overtime that week. Here’s how he would be compensated:

Formula

Jim

Pay for Christmas week

Effective hourly rate

Salary/hours worked $800/40 hour $20/hour hourly rate

Overtime

1.5 * effective hourly rate

1.5 * $20/hour

$30/hour overtime rate

Overtime pay

# hours worked in excess of 40/week * overtime rate 10 hours * $30/hour $300 overtime pay
TOTAL PAY FOR WEEK Salary + overtime pay $800 + $300

$1,100

White collar workers can also be non-exempt

Workers considered “white-collar” must meet the exemption criteria of the FLSA in order to be considered an exempt employee. If not, the white-collar worker is considered non-exempt. That means he or she must track hours and be compensated through overtime wages whenever regular work hours are exceeded.

Advice: Be cautious or get advice

If you’re unsure whether a role can be classified as exempt, you have two options:

  1. Err on the side of caution and classify as non-exempt: While it can be more expensive, if you’re unsure whether an employee qualifies as “exempt” vs. “non-exempt,” classifying the employee as non-exempt will prevent any later legal problems. Remember that the employee needs to track their time and that you will be required to pay for any hours worked in excess of 40/week (8 hours/day in California).
  2. Talk to an expert. HR professionals can advise you on whether a role meets the criteria associated with “exempt” status. If you’re not working with an HR team or your own team isn’t sure, contact Stratus.hr. In addition to traditional HR tasks, such as payroll and benefits administration, Stratus.hr also provides expert guidance for every business that partners with us. You can reach our experts at HR@Stratus.hr.
Exempt v Non-exempt

Incorrectly classifying a non-exempt employee as “exempt” leaves you vulnerable to legal ramifications.
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Colin Thompson

Author Colin Thompson

Colin is a certified Senior Professional in Human Resources (SPHR) and manages internal human resources, in addition to servicing clients and overseeing our HR team. In his free time, you’ll find Colin at one of his four son’s ballgames or eating sushi.

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