The U.S. Department of Labor's Wage and Hour Division enforces rules that determine whether employees are exempt or nonexempt. The simplest way to explain the difference is to understand which employees are entitled to overtime pay and which ones aren't. That said, the difference between exempt and nonexempt status is reflected in both job duties and pay status. Exempt employees aren't entitled to overtime pay but nonexempt employees are, provided they work more than 40 hours in a work week.

Exempt Employee Definition

An exempt employee isn't subject to the Fair Labor Standards Act's (FLSA) rules on overtime and, therefore, isn't entitled to overtime pay. The FLSA is the federal statute that governs overtime pay for employees who work more than 40 hours in a work week. There are state statutes that also govern overtime pay, and when the federal and state rules differ, the one that favors the employee is the rule employers must follow.

Exempt employees – also called salaried employees – are compensated a set amount regardless of the number of hours they work each week. For example, if you're an exempt worker and your annual salary is $50,000, your equivalent hourly rate based on 2,080 work hours in a year is $24.04. Your equivalent weekly rate is $961.60. You're paid that rate regardless of whether you work 40 hours or more than 40 hours in a work week.

The FLSA establishes what it calls the “salary level test” to determine who's considered a salaried employee. The salary level for exempt employees is $455 per week, or $23,600 annually. Therefore, if you make $455 a week or more, you're generally considered an exempt employee. But there are other factors that determine whether an employee is truly exempt and it has to do with job duties.

Exempt Job Positions

To be classified as holding an exempt position, you must consider job duties as well. Whether you're an employee or employer, don't rely solely on the salary test to determine whether the position is exempt or nonexempt. Review your job duties too. Begin with the written job description or job posting and follow up with an assessment of your daily or weekly job duties.

If the position requires independent judgment, discretion or is essential to running the business, it could be exempt. Exempt job duties fall into three categories: executive, professional and administrative.

Executive Employee Exemption

Executive job duties typically include supervising others, managing business operations and providing input concerning the employment status of others, such as hiring, firing and promoting employees. In addition to job duties, the salary test for executive roles is much higher – $100,000 a year or more generally means the job is considered an executive role.

Professional Employee Exemption

Professional job duties entail specialized tasks in fields such as dentistry, teaching, accounting and nursing. (Registered nurses are the only ones in the nursing field considered exempt under the professional category – licensed practical nurses and certified or noncertified nursing assistants aren't exempt employees). Doctors, lawyers, scientists and architects are also considered exempt because of their duties that are deemed professional, based on the FLSA rules.

Employees in the professional exempt category typically are easy to classify. If an employee has post-secondary education, and especially an advanced degree to attain specialized knowledge, the type of work they do may indeed be considered exempt under the professional category.

Administrative Employee Exemption

Administrative job duties consist of nonmanual (i.e., office work, as opposed to manual labor or production work) duties that are necessary for the management of the company’s operations. In order for the employee to qualify for the administrative exempt position, she must exercise independent judgment and discretion and fill a significant role within the company. Although secretaries and typists are usually considered administrative employees, this category for exempt status requires far more than just knowing how to type memos and letters and organize files. An executive assistant, on the other hand, performs some secretarial duties but may be more easily classified as an exempt employee.

An executive assistant would likely be considered exempt because the duties support an executive or manager in the company and are necessary for business operations. Executive assistants also use independent judgment and discretion in the performance of their job, which is another reason why they're often considered exempt employees. Other examples of administrative employees deemed exempt from the FLSA include bookkeepers, payroll processing agents and human resources or personnel specialists.

Nonexempt Employee Positions

Using the process of elimination to determine who's an exempt employee and who's a nonexempt employee is rather easy. Employees whose job duties don't fall under the executive, professional or administrative exempt definition are generally considered nonexempt, which means they're not exempt from the FLSA. An employee who's not exempt from the FLSA is entitled to overtime when they exceed 40 hours in a workweek.

Nonexempt employees entitled to overtime pay, in most cases, receive one and one-half times their hourly rate when they work more than 40 hours a week. Some states – California is one – pay one and one-half times the hourly rate when an employee works more than eight hours and fewer than 13 hours in one day. Once the employee works more than 12 hours in a day, they're entitled to double their hourly rate.

In addition, California law requires one and one-half times the hourly rate if the employee works seven consecutive days. Employers owe double time to employees who work more than eight hours on the seventh consecutive day of work.

Examples of nonexempt positions are manufacturing and production workers, security guards, food service workers, skilled laborers (e.g., electricians, carpenters and plumbers) and unskilled laborers (e.g., custodians, farm helpers and retail clerks). The majority of job duties for these positions don't require the use of independent judgment or discretion; hence, they don't qualify for the executive, professional or administrative exemption under the FLSA.

Pay for Actual Hours Worked vs. Flexibility

Employees in nonexempt positions are generally required to enter their daily time by using a time clock or otherwise record their hours so they're accurately paid for their actual work hours. For example, if a nonexempt employee works 39 hours in a week, they'll be paid for 39 hours. Conversely, an exempt employee receives the same pay, even if they work only 39 – not 40 hours – in the week.

Some believe that exempt workers have more flexibility or freedom than nonexempt employees simply because they receive the same pay if they, for instance, take a lunch hour that runs a little longer than 30 or 60 minutes. On the other hand, a nonexempt worker who puts in 50 hours in a work week will be paid time and a half for those extra 10 hours, and the exempt employee receives the same salary that's based on the 40-hour work week.

The Future of Exempt vs. Non-Exempt Workers

Wages are rising and so is the threshold for the salary test. In March 2019, the U.S. Department of Labor announced that changes may be on the horizon for more workers to be considered nonexempt. Raising the threshold means that higher-wage non-exempt workers may be eligible for overtime pay. This also means that employers should review the job duties for exempt workers to ensure that they're still classified as non-overtime-earning employees.

Changes to the salary test are covered under the Notice of Proposed Rulemaking (NPRM). Human resources managers and personnel specialists who are in charge of classifying employees in exempt and nonexempt categories must be aware of changes to both the federal law (FLSA) and state laws to make accurate classifications.