Exempt and Non-Exempt Employees: What’s the Difference
Whether your employees are considered exempt or non-exempt impacts several things from whether they track their time to overtime pay eligibility. But before you can accurately categorize your workforce, you need to understand what exempt and non-exempt means—and what’s required for each group of workers.
The classifications come from the Fair Labor Standards Act. This far-reaching federal law was created in 1938 after the Great Depression. It establishes a whole host of employment regulations including setting the federal minimum wage, creating rules for overtime pay, and establishing the 40-hour workweek. The FLSA also defines which employees are covered by the laws and which are not—non-exempt and exempt employees, respectively.
What are non-exempt and exempt employees?
Non-exempt employees are workers that are covered under the FSLA. That means that you must pay these employees at least minimum wage for the number of hours they work. You must also provide overtime pay that is at least time-and-a-half for hours they worked beyond the 40-hour workweek. Non-exempt employees are almost always hourly.
In contrast, salaried employees are usually considered exempt employees. According to the Department of Labor, this means that they’re exempt from the FSLA requirements regarding overtime pay and minimum wage.
In theory, you should compensate your salaried employees enough that issues of 40 hour work weeks and overtime pay become moot—they’re required to fulfill their job duties, and their salary makes it worthwhile.
Can hourly employees be exempt?
This is an important question with a bit of a complicated answer. While the FSLA regulates the treatment of most hourly workers in the U.S., there are some industries and jobs that are not included. In these cases, businesses can pay employees an hourly wage, but the employees aren’t protected by the FSLA. As such, they’re not required to receive overtime pay or minimum wage.
The exempt workers include some parts of food service such as wait staff, truck driving, movie theater, and regular theater employees. In addition, jobs within the agriculture industry and outside sales positions are also often exempt, though they may be paid by the hour.
Do the requirements for non-exempt employees vary by state?
While the FSLA regulates employers across the country, individual states may have their own labor laws that come into play with non-exempt employees. The most prevalent is the minimum wage. While federal law sets a base for the minimum wage, most states enact their own and they vary across the country. For example, the minimum wage in Washington state is $13.50 per hour while the minimum wage in Texas is $7.25 an hour.
Also while the federal law doesn’t regulate breaks or time for meals, states may have their own rules for how long breaks should be and whether they’re paid. As an employer, you’re required to abide by both federal and state labor laws. So be sure to educate yourself on any regulations that are specific to your state.
Can you pay an employee with exempt status an hourly rate?
In some cases, it might make sense to pay an exempt employee on an hourly basis. Perhaps the employee wants to take on an ad-hoc project that’s outside of her regular job duties or reduce the amount of time she works to less than full-time. However, in order to be exempt from the Federal Labor Standards Act, a salaried employee first must meet the duties test, which determines which types of jobs are eligible for exemption.
Employers are then required to pay the worker on a salary basis. If a new work arrangement means that an hourly rate is more appropriate for an employee, then you’ll need to reclassify that person as a non-exempt worker. The employee is then eligible for overtime pay and must earn at least minimum wage.
Time tracking essentials for non-exempt employees
In the construction, industrial and restaurant industries, non-exempt workers are a big component of the workforce. As an employer, staying compliant with FSLA regulations as well as the laws in the states you operate is critical. Run afoul of federal and state laws, and you could face penalties and lawsuits from your employees.
Here are three ways you can properly track hours worked for your non-exempt employees and avoid compliance problems:
1. Document your employees work hours in real-time
It’s easy for hourly employees to fall into the habit of recording all their work hours at the end of a pay period. However, this practice leads to errors within timecards and estimates about how much people worked and when. While it’s most problematic with paper time cards, employees also estimate and report time in bulk when using time tracking software that requires manual entries.
People platforms such as Hourly, however, make it easy for employees to clock in via a mobile app in real-time. Managers or human resources staff can even institute location-based check-ins, which allow employees to clock in only if they’re at the designated work site. By eliminating the manual aspect of time tracking, you can ensure you’re tracking employee work in real-time, and then documenting their work hours for compliance, overtime, sick leave, paid time off, and more.
2. Properly track overtime hours and overtime pay
When your non-exempt employees work more than 40 hours, they’re immediately eligible for overtime pay. (In some states, overtime kicks after an eight-hour workday instead of a 40-hour workweek). Keeping meticulous track of the time employees work is not only smart business, but it also ensures you remain FSLA compliant. Employers who don’t pay overtime may be forced to pay employees back pay, associated damages, and attorney’s fees.
A time tracking solution like Hourly makes it easy to see when employees are nearing overtime. You can set real-time alerts that denote when an employee is approaching the end of their regular hours and get an overview of total overtime worked by your team. With that information, managers can make smart decisions about whether overtime is warranted or find ways to avoid overtime expenses, such as bringing on different workers.
3. Ensure employees are taking breaks—and document them
FSLA regulations require that if an employer provides their non-exempt employees with a short break during the work (usually 20 minutes or less), that the break is paid. However, employers don’t need to pay employees for a dedicated meal-time, which is typically at least 30 minutes, as long the employees are allowed to do what they want during this free time. Different states also have varying takes on paid and unpaid breaks and lunches.
An automated time tracking app reminds your employees to take their breaks and lunches and provides documentation that they did. What’s more, a solution like Hourly can help ensure employees aren’t taking more than their allotted time—something called time card theft—and provide evidence if that occurs.
To exempt or not exempt …
The nature of your business and the types of jobs you provide will answer the question of whether your employees are nonexempt or exempt. Knowing the differences between the two, and why it’s important to follow the rules for both will keep your company in compliance and out of trouble.
Navigating the nonexempt worker landscape can be complex. But a solution like Hourly is your secret weapon. Take advantage of our time tracking software to automate and simplify your timekeeping for employees and managers alike.
The original article by Kelly Kearsley was published at Hourly.io