Glossary of Human Resources Management and Employee Benefit Terms
The federal Fair Labor Standards Act (FLSA) requires employers to classify jobs as exempt or nonexempt. Nonexempt workers are covered by FLSA regulations, while exempt employees are not. Exempt positions are excluded from minimum wage, overtime, and other rights and regulations under the FLSA.
Nonexempt workers are entitled to earn at least the minimum wage for hours worked, and given overtime pay (one-and-a-half times their hourly rate) for every hour they work more than the standard 40-hour workweek. The majority of employees who are covered by the FLSA are considered nonexempt. In most cases, the type of work, amount of wages, and manner of pay (hourly or salary basis) control how an employee is classified.
A salaried nonexempt position is also subject to a minimum amount as set by FLSA regulations. While most people think of minimum wage with hourly employees, the FLSA does set a minimum weekly threshold for nonexempt salaries. Some states may have a higher starting pay per week to qualify, in which case the higher state wage takes precedence, but a nonexempt salaried employee cannot be paid less than the federal minimum.
While both salaried nonexempt employees and hourly employees are covered under FLSA rules and regulations and must be paid at least a federal minimum wage, they differ in how that pay is determined. An hourly employee receives payment for the actual hours he or she works during the week. Hourly jobs typically indicate how much an employee will be paid for each hour worked.
In contrast, a salaried worker is paid an annual amount, called a salary, which is divided between pay periods. Salaried employees are paid on that amount, according to an employer’s expectation of how many hours the employee will work. It’s not uncommon for salaried employees to work more or less than a “normal” 40-hour workweek.
Exempt positions are excluded from minimum wage, overtime regulations, and other protections nonexempt workers receive under the FLSA. For an employee to be exempt, they must receive a salary rather than an hourly wage for their position. Salaried exempt employees are expected to work the number of hours necessary to complete their tasks, whether that’s 35 hours or 55 hours per week. Their compensation doesn't change based on the actual hours they work.
Exempt employees also generally earn fixed salaries that are higher than what 40 hour-per-week, minimum wage earners earn. Typically, white-collar workers (executive, professional, and administrative workers) are exempt positions.
All positions are nonexempt by default, and an employer may change an employee status from exempt to nonexempt, even when a position qualifies for exempt status. As with all nonexempt positions, the employer will need to track the hours worked and pay overtime when appropriate.
In addition, the change should be made with the intention that it is long term or permanent. A week-by-week change or frequent changes back and forth may indicate an employer is avoiding paying overtime.
The answer to this question depends in large part on the employee. Some workers prefer the security of knowing that they’re paid for every hour they work, and therefore would consider nonexempt positions better. Others prefer the greater freedom that comes with salaried positions and would choose exempt positions over nonexempt ones.
For example, nonexempt employees are typically held to a more strict standard when it comes to things like casual time or breaks. Exempt employees have more latitude to spend time chatting with a coworker without fear of incurring the wrath of a supervisor. Nonexempt employees often have designated breaks allowed only at certain times during the workday and their time tends to be more closely monitored.
Generally, exempt employees are paid more than nonexempt employees. Because they are expected to complete tasks rather than track hours, staying late or coming in early may be required to do the job. Nonexempt employees typically work only their set number of hours.
While nonexempt employees, in general, receive more protection under federal law than exempt employees, most employers treat their exempt and nonexempt workers similarly. There is also universal workplace legislation that gives all employees, whether exempt or nonexempt, the right to equal employment opportunities, to a safe and healthful work environment, and rights provided under the Family and Medical Leave Act and federal child labor laws.
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