The understanding of wage classification assists HR managers and business owners to compensate workers in strict fidelity to the law. It’s the foundation that minimizes litigations, disputes, and compliance issues. Fair Labor Standards Act (FLSA) is the basis that draws a line on whether an employee is exempt or nonexempt. Nonexempt employees can claim overtime, whereas exempt employees can’t claim overtime regardless of the number of hours they work.
Difference Between Exempt and Nonexempt Employees
Here is a three-point test to help you understand these classifications
- Salary Level: Any employees paid less than $913 per week are considered nonexempt.
- Salary Basis: This classifies employees that receive a guaranteed minimum pay regardless of the hours worked. It’s not expressly the total pay but the portion they’re entitled to receive in a given workweek.
- Duties: These can either be administrative, professional, or executive, but high-level services — for instance, a computer engineer who has improved their skill through prolonged studies.
Here are a few things you need to know about exempt and nonexempt employees
- Exempt Employees: These employees are paid a set amount regardless of how many hours they have worked in a week. This simply means that exempt employees receive a salary and are not paid hourly as their work is either professional, executive, or administrative.
- Nonexempt Employees: Nonexempt employees must be paid a minimum of 40 hours plus overtime— being 1.5 of the standard hourly rate — for any given workweek. As an employer, it’s prudent to comply with additional state laws that further classify non-exempt employees.
Exemptions In White-collar Roles
Many variables determine whether an employee qualifies for an exemption or not. Here are a few of them to help you understand better.
Executive Exemptions
- The primary duty is the management of the enterprise or one of the divisions.
- Manages the work of two or more employees or an equivalent
- Has the authority to fire, hire, make recommendations or change the status of an employee.
- Paid on a salary basis with minimum pay of $684 weekly
Examples include business owners, CEOs, and Vice Presidents.
Administrative Exemptions
- The primary role is non-manual and involves the general running of the business operations.
- Exercises decision-making on significant matters and can bind the company using contracts such as consultation, advice to management, and long-term plans.
- They are paid on a salary basis.
A point to note: Administration exemptions are overlooked and misclassified because most employees are not proud of holding a nonexempt position in an office setting.
Examples include office secretaries and office managers.
Professional Exemptions
- The primary duty involves advanced knowledge that relies heavily on discretion and judgment.
- It must be in science or learning whose knowledge is acquired through prolonged study or specialization.
- They are paid using a salary or a fee and no less than $684 weekly.
Examples include doctors, lawyers, architects, computer scientists, writers, artists, and so on.
Tips to Manage Exempt and Nonexempt employees
- It’s recommended to keep track of the hours worked by exempt employees separately. Employers can also require them to work on specific shifts and keep track of hours clocked.
- Conduct an annual review to classify workers afresh. For example, if the duty performed is repetitive every other day, such a worker can be classified nonexempt.
- Training: It’s important to keep your workforce informed on new policies and rules that affect compensation and classification.
Let Us Help You Comply And Manage Your Workforce
The process of classifying employees is complex and sometimes confusing. A classification mistake can have far-reaching legal and financial implications. As such, it’s advisable to invest in systems and knowledge for better management. That said, you’ll need a reputable firm like ASAP Payroll Service. We offer time management systems, payroll service, and valuable HR resources. Contact us today to transform your HR function.
