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Exempt or Nonexempt? Classifying employees
Unsure whether you have an exempt or non-exempt employee? If you classify an employee incorrectly, you could be putting your business at risk.
Should That Employee Be Exempt or Non-Exempt?
(Updated January 6, 2020)
Unsure whether you have an exempt or nonexempt 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.
Answers to the top exempt vs. non-exempt employee questions, including, "If my exempt employee asks for time off but has no paid time off left, does that mean I need to pay them?"
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:
- Minimum salary: In order for an employee to be “exempt,” he or she must be paid at least $684/week (with the exception of an outside sales rep) and meet at least one of the allowable exemptions.
- Allowable exemptions: In addition to salary, an exempt employee must also meet at least one of the following exemptions:
- Executive exemption – Performs management duties and has the ability to hire, fire and promote staff.
- 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.
- Professional exemption – Performs a job requiring advanced knowledge in a field of science, learning (typically a college degree is required), or a creative field.
- Computer employee exemption – Serves in a role that is highly skilled at computers. This fact sheet from the DOL has more information.
- Highly compensated employee exemption – Receives annual compensation of at least $107,432 annually and performs office or non-manual work.
- Outside sales exemption – Primary job responsibility is to make sales away from the employer’s place of business.
- 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.
- 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.
Nonexempt Employee Definition
If a worker cannot meet the exemption criteria listed above, they are considered “nonexempt.” 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 nonexempt status
Not all salaried employees are considered “exempt.” A nonexempt 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 nonexempt, 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 (nonexempt) 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:
Pay for Christmas week
Effective hourly rate
|Salary/hours worked||$800/40 hour||$20/hour hourly rate|
1.5 * effective hourly rate
|1.5 * $20/hour||
$30/hour overtime rate
|# 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||
White collar workers can also be nonexempt
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 nonexempt. 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:
- Err on the side of caution and classify as nonexempt: While it can be more expensive, if you’re unsure whether an employee qualifies as “exempt” vs. “nonexempt,” classifying the employee as nonexempt 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).
- Talk to an expert. HR professionals can advise you on whether a role meets the criteria associated with “exempt” status. Reach out to your certified HR expert for guidance. Not a current Stratus HR client? Book a free consultation and our team will contact you shortly.