If you are in charge of determining compensation for full-time employees, it will be important for you to understand the difference between an exempt employee and a non-exempt employee. This classification plays a critical role in how you are legally required to pay your employees in the U.S., particularly in relation to overtime pay.
In this guide, we’ll answer the question, “what is an exempt employee,” and we’ll talk about what exempt status means, as well as help you determine when an employee becomes exempt.
What is an Exempt Employee?
In the U.S., employee compensation is regulated by the Fair Labor Standards Act (FLSA). This act establishes parameters around minimum wage, overtime pay, and the standards for employing youth. According to the FLSA, employees in the U.S. must be paid at least the federal minimum wage for all hours worked. However, once an employee reaches 40 hours of work in a single workweek, the FLSA dictates that they must be paid overtime pay equal to not less than time and one-half the regular pay rate.
In some cases, state laws actually provide greater employee protections, such as offering a higher state minimum wage. In these cases, an employer must follow state regulations along with federal regulations.
However, all of the above guidelines apply to what is considered a non-exempt employee. An exempt employee’s pay is regulated differently. The question “What is exempt employee status?”, is best answered by the exempt employee definition as outlined by the U.S. Department of Labor (DOL):
“Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees.”
Essentially, once an employee is considered exempt, their employer is no longer required to abide by the same minimum wage and overtime pay as they must for a non-exempt employee. Exempt employees are often referred to as salaried employees. These employees might work more or less than 40 hours a week, but their compensation remains the same.
Types of Exempt Employees
When determining whether or not an employee is exempt or non-exempt, it is important to first understand the types of exempt employees under federal law. Each type of exempt employee must meet a set of criteria in order to qualify for exempt status. For all exemptions, note that the salary compensation must not be at a rate of less than $684 per week.
Executive Exemption
To qualify for an executive employee exemption, an employee must meet the following requirements:
- They must be compensated on a salary basis
- Their primary work must be managing a department of an enterprise or the entire enterprise
- They must be in charge of directing the work of at least two or more full-time employees
- They must have the authority to hire or fire and/or the ability to provide recommendations regarding hiring, firing, promotions, and employment status changes of other employees
Administrative Exemptions
To qualify for an administrative employee exemption, an employee must meet the following criteria:
- They must be compensated on a salary basis
- Their primary work must include office or non-manual work that is directly tied to business operations or management
- Their work must allow for independent judgment relating to matters in the business of significance
Professional Exemption
To qualify for a professional employee exemption, an employee must meet the following guidelines:
- They must be compensated on a salary basis
- Their work must require advanced knowledge, primarily considered intellectual in nature
- Their advanced knowledge must be in a field of science or learning
- Their advanced knowledge must be information that would generally be learned through specialized coursework
Creative Professional Exemption
To qualify for a creative professional exemption, an employee must meet the following criteria:
- They must be compensated on a salary basis
- Their primary work must require imagination, invention, or originality of talent in a field that is considered artistic or creative
Computer Employee Exemption
To meet the computer employee exemption, an employee must meet the following standards:
- They must be compensated on a salary basis
- The employee must be working as a computer programmer, software engineer, computer systems analyst, or another skilled job in the field of computers
Outside Sales Exemption
To qualify for the outside sales employee exemption, an employee must meet the following criteria:
- Their work must be defined as making sales
- They must be regularly working away from their employer’s place of business
It is worth noting that the above exemptions do not apply to blue-collar workers, police, firefighters, paramedics, and other first responders.
How to Determine if an Employee is Exempt or Non-Exempt
As you classify your employees and determine their compensation, it is important to make sure that if you do consider an employee exempt, they meet the criteria outlined by the DOL. Generally, an employee can only be considered exempt if:
- They receive a salary equivalent to more than $684 per week
- They are paid this salary regardless of the total hours worked in a week
- They have duties that align with one of the above exemption statuses, such as professional, administrative, creative, etc.
Frequently Asked Questions
If you still have questions about exempt employees, here’s some additional information.
What does “exempt employee” mean?
An exempt employee is an employee that, due to their status, is exempt from normal overtime wage laws as outlined by the FLSA.
Does an exempt employee have to work a set number of hours?
An exempt employee is not required to work a set number of hours. These employees are paid a salary at a regular interval, regardless of the hours worked. However, many companies have policies requiring that an exempt employee works 40 hours a week. While employees cannot withhold pay if an exempt employee does not work 40 hours a week, they can take disciplinary action.