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Exempt vs. nonexempt employees: You’ve probably come across these terms while filling out an application, in job advertising, or casual conversation. but, if you’re like most people, the difference between the two groups is hazy at best. Do you know what exempt employees are allowed to do?
Let’s dive into it! Employers must designate jobs as exempt or nonexempt under the Fair Labor Standards Act (FLSA). Exempt employees are not covered by FLSA restrictions, while non-exempt employees are. Here’s everything you need to know when it comes to non-exempt vs. exempt employees.
Exempt employees are excluded from the minimum wage, overtime laws, and other rights and protections enjoyed by nonexempt employees. For a job to be considered “exempt”, employers have to pay a salary instead of hourly rate. Only executive, managerial, professional, and outside sales positions are often exempt.
Employees who are not exempt from the FLSA are referred to as nonexempt. Workers in this group must be paid the federal minimum wage for every hour worked and must be paid overtime at least one-and-a-half times their hourly wages for any worked hours above 40 per week.
The 3 Main Differences between Exempt and Nonexempt Employees
1. Payment For Overtime
Exempt employees are not compensated for working more than 40 hours per week; they are compensated for completing the job. Nonexempt employees, on the other hand, must always be paid overtime if they work more than 40 hours per week, that’s why it’s generally in the best interests of employers to keep nonexempt employees’ hours low.
2. Workers Rights and Unemployment
Nonexempt employees, on average, have better protection under federal law than exempt employees. But most businesses handle exempt and nonexempt employees in the same way.
The freedom to a safe and healthy workplace, the right to equal employment opportunities, and the rights given under the Family and Medical Leave Act and federal child labor laws are the most important pieces of federal legislation that apply to the workplace. These laws apply to both exempt and nonexempt employees.
While unemployment benefits vary by state, both exempt and nonexempt employees are generally eligible for unemployment compensation. Check with your state’s Department of Labor to see exactly what those benefits are.
3. Tax Liability
There is no difference in how exempt and nonexempt employees are taxed. The only difference will be which tax band employees fall into based on their salary level. It makes no difference whether the income is earned by the hour or as annual pay.
What determines if a job is exempt or nonexempt?
The Fair Labor Standards Act doesn’t provide for overtime compensation for exempt employees (FLSA). Even if they work overtime, these “salaried” employees are paid the same amount per pay period. A nonexempt employee who works more than 40 hours per week is entitled to overtime pay.
Who qualifies as an exempt employee?
Exempt employees don’t earn overtime compensation or aren’t eligible for minimum wage. Exempt employees are paid a salary rather than by the hour, and their employment is usually executive or professional.
Other groups of employees may be deemed exempt from overtime compensation in addition to the major categories of exempt employees. Agricultural workers, movie theater personnel, and taxi drivers are some of them.
Is it better to be an exempt or nonexempt employee?
Some employees would prefer to work in nonexempt roles since they would be paid for every hour they worked. Others appreciate the flexibility that jobs provide. Most non-exempt employees, for example, will be held to a higher standard when it comes to things like leisure time. Nonexempt employees’ time is more carefully monitored, and dedicated breaks are only allowed at certain times during the workday.
Who are the non-exempt employees?
Non-exempt employees work for a minimum wage, are entitled to overtime pay, and do not meet the standards of exempt employees. Contractors, freelancers, interns, servers, store workers, and similar positions are examples of non-exempt employees.
These are just a few of the things to keep in mind when you’re running a small business. Knowing the difference between exempt and nonexempt employees is something all business owners should know about. We have a a lot of articles dedicated to helping you be the best business owner you can be!