Besides setting the federal minimum wage, child labor and record-keeping standards in the United States, the Fair Labor Standards Act (FLSA) also sets the conditions for whether an employee is exempt or nonexempt. The latter accounts for most hourly employees.
A nonexempt employee does not meet the requirements for exemption from overtime pay under the FLSA. Consequently, an employer is supposed to pay nonexempt employees overtime wages if they work more than 40 hours in a week. In some cases, an employee can be salaried and nonexempt. For example, if an employee is paid on a salary basis but her job duties does not meet the FLSA’s required definitions for exempt status, she’s nonexempt and qualifies for overtime pay.
An employer is supposed to pay nonexempt employees -- hourly or salaried -- overtime wages at 1 1/2 times their regular pay rate for work hours that exceed 40 for the week. If the employee incurs more than 40 hours for the week due to a benefit day taken, such as vacation or holiday, she is not entitled to overtime; the employer pays all hours at her regular pay rate. She must actually work more than 40 hours for the week to receive overtime.
Though most hourly employees are nonexempt, an employee, such as an academic schoolteacher, can be exempt and hourly -- the employer does not have to pay overtime in this case. The employee’s job duties are the main deciding factors in whether he’s exempt. For example, an outside salesperson’s main duty must be performing sales or getting service contracts or orders, and he must frequently work off-site, away from his employer’s place of business to classify as exempt.
Erroneously classifying an employee as exempt instead of nonexempt can lead to severe consequences. In March 2011, the U.S. Department of Labor, Wage and Hour Division, which administrates the FLSA, reported that it discovered that a Florida-based company had improperly labeled employees as exempt, resulting in the company agreeing to pay $754,578 in overtime back wages to 89 current and past employees. The department requires such violators to pay back wages, appropriately classify employees as nonexempt and adhere to the FLSA in the future. Repeated violations can lead to civil penalties of up to $10,000 and imprisonment.