Deciding how to classify exempt vs. non-exempt employees can be confusing at first. But with a bit of light research, you can make the best choice for your business.
In this article, the workforce management experts at Sling tell you everything you need to know so that you understand the difference between the two categories and how exempt vs. non-exempt applies to your company.
Exempt Vs. Non-Exempt Employees And The FLSA
The difference between exempt and non-exempt employees has its origins in the Fair Labor Standards Act (FLSA), which establishes the following standards for the vast majority of businesses in the United States:
- Minimum wage
- Overtime pay
- Child labor
It’s the first two standards — minimum wage and overtime pay — that directly apply to our discussion of exempt vs. non-exempt employees.
We’ll discuss each topic in a bit more detail so we’re all on the same page, but the heart of the matter is whether these two standards apply to your employees (they’re non-exempt) or not (they’re exempt).
The FLSA sets the minimum wage standard at $7.25 an hour for all adult, non-tipped employees (some exceptions apply).
Having said that, each individual state can set their own wage standards as long as the minimum does not fall below the federally mandated $7.25 an hour.
So, for example, in 2020, Indiana, Kentucky, and Oklahoma set their minimum wage at $7.25 an hour while Minnesota, California, and Maine adopted other minimums ($10 an hour, $13 an hour, and $12 an hour respectively).
For most businesses, overtime pay is the most relevant (and impactful) standard when it comes to exempt vs. non-exempt classification.
The FLSA states that businesses must pay their employees at a rate of not less than one and one-half times their regular rates of pay after 40 hours of work in a workweek.
For example, if your business pays an employee $10 an hour and they work 50 hours in a workweek, you will owe them 10 hours of overtime pay calculated at 1.5 times their regular pay rate.
Here’s how that works out:
- Calculate their regular pay for 40 hours of work ($10 x 40 hours = $400)
- Calculate their overtime pay rate based on their regular pay rate ($10 x 1.5 = $15)
- Calculate their overtime pay for 10 hours of work ($15 x 10 hours = $150)
- Add the regular pay and the overtime pay together ($400 + $150 = $550)
Your business would owe that employee $550 for the 50 hours they worked during the week.
For more information on overtime and payroll, take a few minutes to read this helpful article from the Sling blog: How To Calculate Overtime Related To payroll | The Complete Guide.
As we mentioned earlier in the article, the basis of exempt vs. non-exempt status comes down to whether or not the previous two standards — minimum wage and, more specifically, overtime pay — apply to your employees.
That’s what we’ll discuss in the next two sections.
What Is An Exempt Employee?
An exempt employee is one who is NOT subject to the overtime pay and/or minimum wage standards as put forth by the FLSA.
For example, if you employ a teacher, they may be exempt from overtime pay standards, minimum wage standards, or both.
On the other hand, if you employ a salesperson, they may be exempt from the overtime pay standard only.
In most cases, it’s the overtime pay standard that is most directly applicable to a business’s choice to classify an employee as exempt vs. non-exempt.
This is because the majority of exempt employees receive a salary for the work they perform rather than being paid by the hour.
When a business classifies an employee as exempt, the business then has the authority to determine what, if anything, and how they will pay an individual for any overtime worked.
Typically, the business won’t pay any kind of overtime because the employee is paid a set amount regardless of the number of hours they work during the week.
The employee might work 30 hours one week and 50 hours the next week, but they would receive the same amount in their paycheck both weeks.
Certain professions and types of work are exempt from the FLSA standards while others are not. For more details on exempt vs. non-exempt employees, visit the United States Department of Labor website.
There, you’ll find more examples of exempt and non-exempt employees, such as:
- Those exempt from BOTH minimum wage and overtime pay (executives, administrators, professionals, casual babysitters, and others).
- Those exempt from overtime pay ONLY (railroad employees, taxi drivers, local delivery employees paid on approved trip rate plans, and others).
- Those with PARTIAL exemptions from overtime pay (some agricultural workers, bulk petroleum distributors, residential care employees, firefighters, police officers, and others).
To make sure your business is in full compliance with local, state, and federal mandates (be it overtime, wages, or recordkeeping), consult an attorney who is familiar with labor law in your industry.
What Is A Non-Exempt Employee?
A non-exempt employee is one to whom the mandates in the FLSA directly apply. That means that they are entitled to both minimum wage and overtime pay standards.
Most non-exempt employees are paid on an hourly basis.
Your business can choose what hourly rate to pay non-exempt employees — as long as it abides by federal and state minimums — but overtime pay applies to all such employees.
Examples of non-exempt employees include:
- Restaurant servers
- Retail workers
- Administrative assistants
Even if you start an employee off with the non-exempt classification, you can switch to exempt status at a later date.
For example, if you hire an administrative assistant and pay them hourly as a non-exempt employee but later find that they are consistently working a half-hour of approved overtime Monday through Friday, it may be best to change their classification to exempt.
In that case, you would pay them a set amount (a salary) each week regardless of the number of hours worked.
Again, visit the United States Department of Labor website and consult an attorney familiar with your business to ensure that your minimum wage and overtime pay structure are in compliance with state and federal mandates.
Organize Exempt Vs. Non-Exempt Employees With Software
Deciding whether to hire part-time or full-time employees and classify them as exempt vs. non-exempt is important for your business. It will directly affect your business’s bottom line.
Equally important is how you choose to manage, organize, and optimize your workforce.
Software is the solution to that conundrum. And the Sling app is the best choice to help you manage all aspects of your business.
First and foremost, Sling gives you unprecedented control over your scheduling process.
With the cloud-based tools that Sling offers, you can implement employee self-scheduling and quickly and easily build staff rotas one month, two months, even six months or more in advance.
And with the built-in artificial intelligence, Sling automatically reminds you of requested time off, double bookings, and overtime hours so you can finalize the schedule in less time and with less effort.
Sling also acts as a time clock for your business so you can accurately track when your team members work.
Because Sling works on a variety of devices, you can set up a central terminal or allow your employees to clock in and out right from their mobile devices.
And with Sling’s powerful geofencing feature, you can prevent early clock-ins, missed clock-outs, and time theft with the touch of a button.
Sling even lets you optimize labor costs by setting wages for each individual employee or position so you can see how much each shift will cost your business.
You can also keep track of your labor budget and receive alerts when you’re about to exceed those numbers.
All of this — and much more — will help you save money and increase profits regardless of how you classify exempt vs. non-exempt employees.
For more free resources to help you manage your business better, organize and schedule your team, and track and calculate labor costs, visit GetSling.com today.