As an employer, it is important that you understand the difference between exempt and nonexempt employees. This status determines if workers are eligible for overtime pay and other benefits.
The biggest difference between exempt and nonexempt is overtime pay eligibility, as exempt employees do not receive compensation for overtime. The Fair Labor Standards Act defines the difference between the two, and you need to be in compliance with the rules to avoid employee disputes or other legal consequences.
According to the Fair Labor Standards Act, one way to determine the difference between exempt and nonexempt employees is how much money they make and how the employer pays them. An employee is nonexempt if he or she makes less than $23,600 per year. Salary employees, or those guaranteed a certain amount of money each week, are exempt employees and not eligible for overtime pay if they also perform exempt duties.
Another test for exemption status refers to the types of job duties the worker does. FindLaw discusses that there are three main categories used to differentiate these high-level duties:
- Professional: These require specialized education and judgment decisions. Examples of these learned professions include doctors, teachers, lawyers, registered nurses, engineers, architects, dentists and clergy.
- Executive: In general, an exempt executive is a person in charge. He or she must be in a position of management, oversee two or more employees and have a say in hiring and firing.
- Administrative: This individual works in a nonmanual job, relates directly to management or customers and exercises discretion and individual judgment about important matters. Professions include human resource employees, public relations, compliance and marketing.
Exempt employees do not have rights under overtime rules, although they do have the right to receive their full salary. Employees must pay nonexempt employees time and one-half of their regular hourly rate for every hour over the FLSA overtime threshold.