Everything you need to know about exempt vs non-exempt employees

Whether you’re looking to hire someone or are out searching for a new job, understanding the difference between exempt vs non-exempt employees is critical. Employers need to understand what’s best for their company when it comes to hiring new talent – and job seekers need to know how they’ll be paid in the role they’re considering, especially if the job requires working overtime.

Here’s what you need to know about exempt vs non-exempt employees.

What’s the difference between exempt vs non-exempt employees?

“The major difference between exempt and non-exempt employees comes down to whether they will be compensated for overtime work, and whether they are entitled to the federal minimum wage,” explains Gabrielle Ilochi, founder of The Ilochi Law Firm which specializes in employment law. “Under federal law, non-exempt employees working more than 40 hours per week are entitled to time and a half pay for all hours worked beyond the standard 40 hour work week. This time and a half pay is calculated using the employee’s standard pay rate. However, unlike non-exempt employees, exempt employees are not entitled to this overtime compensation.”

Who qualifies as an exempt employee?

“An ‘exempt employee’ is a term that refers to a category of employees as set out in the ‘Fair Labor Standards Act’ of 1938,” explains David Reischer, Employment Attorney at LegalAdvice.com. “‘Exempt employees’ do not receive overtime pay, nor do they qualify for the minimum wage. ‘Exempt employees’ are given a flat salary and are expected to complete the tasks that are required to perform no matter how many hours the task may take.”

As per regulations set by the Fair Labor Standards Act (FSLA), an exempt employee is a salaried employee who is formally trained and performs high-level duties, typically in an office environment. As of January 1st, 2020, exempt salaried employees must make at least $684 per week ($35,568 per year) to qualify per The U.S. Department of Labor (DOL). This remains in place in 2022. Employees who do not meet this salary level must be classified as non-exempt and be paid overtime for all hours worked over 40 in a workweek. “Exempt employees are more likely to work in more sedentary environments requiring less physical strain or skill than that of the typical non-exempt employee,” explains Ilochi. “As such, working longer hours in a more sedentary position is viewed as less physically strenuous than working in a factory or in even in retail.”

According to Ilochi, typical exempt employee roles include:

    • Executives
    • Administrative Personnel
    • Professionals
    • Outside Sales Employees
    • Computer Employees
  • Highly Compensated Employees

Who qualifies as a non-exempt employee?

Non-exempt employees are entitled to at least the minimum wage hourly rate, which stands at a federally mandated $7.25 per hour, but varies wildly, with California currently at $15.00, New York State at $13.20 (New York City, Westchester County and the counties of Long Island at $15.00), Virginia at $11.00 and others closer to or at the minimum level.

Based on the mandated or elected minimum wage across all 50 states and the District of Columbia, the average weekly wage for non-exempt employees stands at just under $400.00. They can be paid either hourly or by salary, but due to the nature of the work they do, they’re entitled to overtime wages. “Non-exempt employees like fast food workers, plumbers, and carpenters, specifically those in non-managerial positions, are afforded the option of overtime pay and are guaranteed a minimum wage to account for prolonged physical labor,” explains Ilochi. Non-exempt employees are typically heavily supervised, meaning most of their work doesn’t involve decision-making or personal judgement. They are not exempt from FLSA regulations, which is why they make overtime.

According to Ilochi, typical non-exempt employee roles include:

    • Carpenters
    • Plumbers
    • Fast Food Workers
    • Electricians
    • Craftsmen
  • Maintenance Workers

Are exempt vs non-exempt employees taxed differently?

Despite being governed by different overtime rules, there’s no difference in how exempt vs non-exempt employees are taxed. All payment earned is taxable based on the income level and bracket the worker falls into –- regardless if it was earned hourly, as a salary, or as overtime payment.

Can you collect unemployment as an exempt vs non-exempt employee?

Generally speaking, being an exempt vs non-exempt employee shouldn’t impact whether or not you’re able to collect unemployment in the event your job is terminated by your employer. It’s important to remember that each state sets regulations for unemployment benefits, so consult the Department of Labor in your state to find out more.

Is it better to be exempt or non-exempt?

There are pros and cons of being either an exempt or non-exempt employee. While exempt employees tend to make more money per year, non-exempt employees have the opportunity to out-earn exempt employees per hour depending on overtime opportunities. There’s also less protection for exempt employees – since they’re exempt from FSLA regulations, an employer can essentially get free overtime out of their employees. This also means exempt employees have a less predictable work schedule depending on the demands of the job – while non-exempt employees typically know their work hours in advance, even when overtime is involved. However, non-exempt employees tend to have less autonomy when it comes to the jobs they perform.

Know your rights in the workplace

Regardless of whether you’re an exempt vs non-exempt employee, you have a right to a safe work environment. Know your employee rights as they pertain to how you’re paid, as well as how you’re treated.