The working world divides employees into two classifications: exempt and nonexempt. The most significant difference between exempt and nonexempt employees is compensation structure. Both types of employees have the right to earn a minimum pay rate. However, nonexempt employees are paid an hourly rate and qualify for overtime pay, while exempt employees earn the same pay regardless of actual hours worked.
Employers have the responsibility to classify job roles as either exempt or non-exempt. In order to classify a position as exempt, the job description must fall into certain categories and meet specific tests determined by the Department of Labor. In general, executive, administrative, sales and professional job positions qualify for exempt status. Each job position must meet distinct requirements to be considered an exempt position. For example, an administrative employee must be able to use independent judgement to be considered exempt, and a professional position must require advanced knowledge in a specific field.
Nonexempt Employee Compensation
A nonexempt employee is an employee that isn’t exempt from the regulations and protections under the FLSA. In accordance with the FLSA, employers must pay at least the minimum wage to nonexempt employees. Nonexempt employees also qualify for an overtime pay rate if they work at more than 40 hours in a workweek. The overtime pay rate for these hours must be equal to at least one-and-a-half times the normal hourly rate.
Exempt Employee Compensation
Rather than being paid by the hour, exempt employees are paid wages through a regular salary. Like the term implies, exempt employees are exempt from certain FLSA regulations. This means that employers don’t have to pay overtime rates to exempt employees. Regardless of whether an exempt employee works 25 hours or 65 hours, he still receives the same salary for the given workweek. Although they are exempt from the federal minimum wage, exempt employees must earn a minimum weekly salary as determined by the FLSA.
Above and beyond federal regulations, states maintain standards for exempt and nonexempt employees. States have the ability to set a state-specific minimum wage for both. Many states require employers to pay nonexempt employees overtime pay in certain situations. For example, California requires employers to pay overtime rates to nonexempt employees that work more than eight hours in a given work day.