Back in 1938, the Fair Labor Standards Act (FLSA) was passed to help protect workers from being taken advantage of. It was the FLSA that established the right to minimum wage and overtime pay. It also established the standard 40-hour workweek and put restrictions on employing minors. As a business owner, make sure that you remain in compliance with all the rules and regulations of the FLSA as well as California state labor laws. This can sometimes makes it challenging to classify your employees. Every company has to classify its employees as either exempt or nonexempt employees, and the accuracy of this classification will affect your ability to comply with other labor laws. In fact, misclassifying an employee can result in potentially costly penalties. Here we offer a brief overview of the differences between exempt and nonexempt employees to help clarify for employers how to classify their employees.
When Is An Employee Classified As “Exempt”?
An exempt employee is an employee that is excluded, or exempt, from some of the specific labor rights provided by the FLSA. It means that employers are not required to pay overtime to employees considered exempt (although they can if they choose to do so). Employees who are considered exempt are paid salary instead of an hourly rate. This means that full-time exempt employees typically work 40 hour weeks. However, they must make at least double minimum wage in California (federal limits differ). If they make less than this, then they are not considered exempt.
The reason that salaried employees working full time are considered exempt is because they have specific duties and responsibilities that may require them to work more than 40 hours a week. However, the job of the employee has to be specifically listed as being exempt by the FLSA. There are both advantages and disadvantages to being classified as an exempt employee.
The Pros Of Being An Exempt Employee
Some of the clear advantages of being an exempt employee are as follows:
- Steady paycheck – Because exempt employees are paid a yearly salary instead of on an hourly basis, it means that they can expect to be paid the same amount whenever they receive their paycheck. This kind of financial stability makes it much easier for employees to budget.
- More freedom – Exempt employees are typically given more flexibility in how they work by their employer. For example, many employers won’t be bothered if their exempt employees show up 10 minutes late to work or take a little extra time on their lunch break as long as they get their work done. On the flip side, exempt employees can put extra time in to get ahead.
- Larger salary – Exempt employees, on average, have higher salaries. It’s rare that a non-exempt employee makes more than $100,000 a year.
The Cons Of Being An Exempt Employee
While being classified as an exempt employee has some very clear benefits, there are a few drawbacks as well. Consider these drawbacks:
- May be required to come in early and leave late – Depending on the responsibilities of an exempt employee, they may have to come into work early and leave work late if they are behind on their duties or there’s simply a lot of work to be done. They’ll be responsible for getting the work done no matter how long it takes.
- Required to work more hours – The more important the position is, the more an exempt employee has to work. Executives are known for working well over the standard 40-hour week. Some professions, such as the medical or law fields, require exempt employees to work 60-80 hour weeks, sometimes more.
- Cannot receive overtime pay – Even though exempt employees often work long weeks and are required to come in early and leave late to get their work done, they aren’t paid extra for the extra time that they put in. Exempt employees are exempt to overtime laws.
When Is An Employee Classified As “Non-exempt”?
Employees who are non-exempt are employees who are being paid an hourly rate. These employees must make at least minimum wage (in California, the minimum wage is higher than the federal amount) and must be paid overtime. The amount paid in overtime must meet the state overtime laws (time and a half for every hour after 40 hours worked within a single workweek, time and a half for every hour worked after 8 hours in day, and time and a half for any hours worked on the 7th consecutive day of the workweek).
The Pros Of Being A Non-exempt Employee
The following are some of the benefits of being classified as a non-exempt employee:
- Overtime pay – The biggest benefit of being a non-exempt employee is that they are entitled by law to overtime pay based on how much they work. In California, overtime rates are much more generous than those on a federal level. Non-exempt employees must be paid time and a half for hours worked past eight hours in a single workday, for hours worked more than 40 hours in a workweek, and for any hours worked on a seventh consecutive day in a workweek. They are also entitled to double time if they work more than 12 hours in a workday and more than eight hours on the seventh consecutive day in a workweek.
- Added protections – Non-exempt employees tend to have more protection under FLSA laws, such as minimum wage and protection against being forced to make up time for absences.
The Cons Of Being A Non-exempt Employee
Although overtime pay is certainly a perk to being a non-exempt employee, there are a few cons as well, which include the following:
- No steady pay – Because non-exempt workers are paid by the hour, it means they can’t depend on steady pay. The employer has the power to change the schedule the very next week so that the employee has fewer hours to work.
- Closely monitored time – Exempt employees don’t have to worry about time as much. If they get their work done early, they can often leave early. Employers may be a little more lenient with exempt employees who show up late as well. Non-exempt employees are much more closely monitored. If they show up ten minutes late, they won’t be paid for those ten minutes. Usually, non-exempt employees have to clock in.
- Required meal and rest periods – Salaried employees will sometimes skip lunch or skip their breaks to get more work done. While federal law doesn’t require companies to provide breaks of any kind, California law does. Non-exempt employees must be given 30-minute unpaid, duty-free meal breaks if they work more than six hours a day and their meal periods must be taken in the first five hours of their shift. They must be given two meal breaks if they work ten hours in a day. It can only be waived by mutual agreement between employer and employee. The drawback lies in the fact that these meal breaks are unpaid. However, rest breaks, which are ten minutes long, are given every four hours and are paid.
Common Positions That Are Typically Available For Exempt Employees
To give you an idea of the type of employees considered exempt, here are a few examples of common exempt positions:
- Professional – Professionals are employees that require advanced education or training to do their jobs. For example, physicians, registered nurses, teachers, architects, and lawyers are all considered professionals–and all are exempt. Creatives, such as actors and musicians, are considered professionals as well.
- Executive – Executives are exempt if they supervise two or more employees, if their job primarily focuses on management, and/or if they have serious input into the job status of other employees (for example, in the firing, hiring, or assigning of employees).
- Outside sales – Outside sales positions refer to positions that require employees to spend more than half of their time working away from their employer’s business. These are traveling salespersons–individuals who spend a lot of time on the road at meetings, visiting clients, and going to trade shows. H2: Common Position Typically Available For Non-exempt Employees
Positions that are not considered exempt include these types:
- Blue collar – Blue collar jobs refer to jobs that require a lot of manual labor. Common blue collar jobs include janitors, firefighters, sanitation workers, plumbers, warehouse workers, electricians, and mechanics, to name a few.
- Retail – Retail jobs are typically hourly jobs. This can include grocery baggers, cashiers, sales associates, and customer service representatives.
- Construction – Construction jobs include jobs that require manual labor and are related to building in some way. Common construction jobs include carpenters, masons, crane operators, and welders.
- Entry level – Entry level positions are hourly and don’t require a huge skill set or amount of experience, but they can lead to exempt positions down the line. Common entry-level positions include administration and clerical positions, like secretaries, marketing associates, and paralegals.
Which Is Ideal, Exempt Or Non-exempt?
Don’t worry so much about getting a certain number of exempt or non-exempt employees onto the books. It’s more about classifying them correctly. Misclassification can result in fines and penalties. To avoid misclassifying your employees, know the differences between the two. You should also review and update your job descriptions to make sure that employees who have similar duties are classified the same way and have a completed exempt analysis on every exempt employee. Each employee should sign off on their exempt analysis and acknowledge that they agree with their exempt status. Even if you think you have a clear understanding of exempt vs. non-exempt employees, it’s still a good idea to double check with legal or HR before you make the decision to classify an employee as exempt.