What is a Non-Exempt Employee?
A non-exempt employee is one who is entitled to a minimum wage and overtime pay through the Fair Labor Standards Act.
The Fair Labor Standards Act (FLSA) is a federal law that provides certain protections for workers, including the right to a minimum wage — and overtime pay for hours per week worked over 40. Not all employees are eligible for these protections; some, typically in managerial roles, are exempt. Someone’s position and job duties determine whether an employee is exempt (meaning the FLSA doesn’t apply to them) or non-exempt. Non-exempt employees receive protection under the FLSA, meaning their employers must pay them a wage that meets the federal minimum wage standards. Additionally, they must receive overtime pay if they work more than 40 hours in a week.
Let’s say Nolan works as a retail employee. Because of the nature of his work, Nolan is a non-exempt employee. Therefore, his employer must pay him a wage that is at least the federal minimum wage — $7.25 per hour as of 2020. Nolan also gets an overtime rate when he works over 40 hours — overtime being equal to one and a half times his wage. Nolan’s boss, however, is an exempt employee. He makes more money, but his employer doesn’t pay him any extra when he works more than 40 hours.
A non-exempt employee is like a babysitter, while an exempt employee is like a parent…
A babysitter is only responsible for the kids when they’re being paid to watch them. Likewise, employers have to pay their non-exempt employees for every hour they work. Exempt employees, like parents, might be on duty all the time without getting any extra pay.
In 1938, the federal government enacted the Fair Labor Standards Act (FLSA). The law provides protections to employees to ensure fair treatment and pay from their employers. The provisions in the FLSA only apply to non-exempt employees (meaning those that aren’t exempt from the law).
Under the FLSA, employers must pay their non-exempt employees a minimum hourly wage. As of 2020, that wage is $7.25 per hour. Employers also have to pay those employees overtime pay of one and a half times their regular rate for every hour over 40 that they work in a week. So, if someone’s hourly rate is $10 per hour, their overtime rate would be $15 per hour.
Some states have taken these employee protections even further by implementing minimum hourly wages that are higher than what the FLSA requires. Thirty-two states and Washington D.C. have a minimum wage that is higher than $7.25 per hour, as of 2020.
Exempt employees do not have these legal protections. They are required to be paid the equivalent of at least $684 per week for full-time work, as of 2020 — up from $466 per week in 2019. Outside of this legal minimum, there are no hourly pay or overtime requirements. So it’s feasible that an exempt employee making $684 per week could work enough hours in a week that their average hourly pay dips below the $7.25 minimum wage (but they’d have to work over 93 hours a week for that to happen).
There are specific qualifications that a position must meet to reach the exempt status. An exempt employee could fall into one of a few different categories:
All of these exemptions require an employee to make at least $684 per week — except for the highly compensated exemption, which requires an employee to make at least $107,432 per year. The administrative and professional exemptions require that an employee be able to exercise independent judgment or discretion in their role. The computer employee exemption requires that an employee carry out specific responsibilities, such as program design or development. The outside sales exemption requires that an employee spends a lot of their time away from the office, making sales and acquiring new clients. All of the exemptions are for white-collar employees. Blue-collar employees (meaning those who have physical jobs) can’t be exempt.
It’s possible that an employee could earn well over $684 per week but still be a non-exempt employee. If an employee that meets the wage requirement doesn't meet the responsibility requirements, they can’t be exempt (unless, of course, they earn enough to be a highly compensated employee).
Some other employees may not meet these requirements, but they also don’t receive protection under the FLSA. Many truck drivers, for example, receive their employee protections under the Motor Carriers Act rather than the FLSA. Additionally, most railroad workers receive their protections under the Railway Labor Act.
There is no difference in the way that exempt and non-exempt workers pay taxes. Regardless of whether an employee earns their pay hourly or through a salary, their income determines the amount they pay in income taxes.
When it comes to employee benefits such as health insurance coverage and 401(k) plans, there is no legal distinction between exempt and non-exempt employees. Instead, it is a provision in the Affordable Care Act (ACA) that sets the legal requirements here. Under the ACA, employers with at least 50 full-time employees have to provide minimum essential health coverage to those employees.
Since both exempt and non-exempt employees could be full-time employees, both could be eligible for health insurance coverage. However, in some scenarios, it’s more likely for exempt employees to work full-time than non-exempt employees.
Think of a large retail store. There are likely to be a lot of full-time employees working in administrative or management roles that might be exempt employees. But there are also lots of employees working in customer service roles. Many of those employees are likely to be part-time employees. In that case, the exempt employees might qualify for health insurance coverage, while many non-exempt employees might not be eligible because of their part-time status.
As for other employee benefits, such as vacation and sick time, no laws govern them. Employers don’t have to offer vacation and sick time to either exempt or non-exempt employees. Many companies choose to provide these benefits to both employee classifications — This trend may be more likely in white-collar jobs. But many non-exempt employees don’t have access to vacation or sick time, especially in the food and customer service industry.
Certain benefits apply to both exempt and non-exempt employees. First, the Family and Medical Leave Act (FMLA) applies to both types of employees. The law allows workers to take up to twelve weeks of unpaid leave per year to take care of themselves or a family member in the case of a severe health problem or injury, or to take care of a child either after the child is born or after the employee has adopted them. These protections only apply to companies with 50 employees or more.
Both exempt and non-exempt employees are also eligible for other government benefits such as unemployment and Social Security benefits.
Whether you’d prefer to work in an exempt or a non-exempt role could vary widely from person to person. Both classifications have advantages and disadvantages. One of the most significant downsides to having a non-exempt status is the pay. Given the legally required minimum pay requirements, it’s likely that exempt roles often pay better than non-exempt ones.
However, be sure to look at the big picture. An exempt role might appear to pay better if you assume that both employees work 40 hours in one week, but a 40-hour workweek isn’t a reality for everyone. Let’s say that you are considering two different jobs: one would allow you to be an exempt employee with a weekly salary of $684. The total hourly rate is $17.10 if you work 40 hours per week. In the other role, you would be a non-exempt employee earning just $15 per hour. If you worked 40 hours per week, the pay comes out to $600 per week.
Now imagine that in both roles, your employer requires quite a bit of overtime. An average workweek comes to about 55 hours of work. In the exempt position, you still make $684 per week. When you calculate the hourly pay, you’re down to about $12.44 per hour. In the non-exempt role, you would be making $737.50. This situation is where the non-exempt status really become beneficial. You make $15 per hour for the first 40 hours, resulting in a total of $600 per week. But then federal law requires that your employee pay you the overtime rate for the last 15 hours, which comes to $22.5 per hour.
The ability to collect overtime pay can be a huge selling point for non-exempt positions, but there are definitely disadvantages as well. First, there are plenty of employers who don’t allow their non-exempt employees to work more than 40 hours — They do this to avoid paying that extra overtime pay. Additionally, non-exempt employees might be less likely to have the option of vacation time, sick time, health insurance coverage, and participation in a 401(k) plan.
There’s also a certain amount of freedom that comes with an exempt position. In many jobs, you can schedule appointments into your day. For instance, you might be able to head out for a doctor’s appointment midday without losing any pay. Taking a few hours off can be a lot more difficult for non-exempt employees — They’re more likely to have to punch a timeclock.
Being a non-exempt employee is especially tricky if you work in a role that doesn’t provide any vacation or sick time. In those instances, you’re only getting paid for the time you’re actually at work. Missing out on that benefit can discourage employees from staying home when they’re sick or participating in family vacations.
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