An exempt employee is an individual who is exempt from the overtime pay and minimum wage requirements outlined in the Fair Labor Standards Act (FLSA). These employees typically hold administrative, executive, or professional roles and are often paid on a salary basis rather than an hourly wage.
What does exempt mean?
In labor law, "exempt" refers to employees who are exempt from certain provisions of the Fair Labor Standards Act (FLSA). The most important distinction between exempt and non-exempt employees is their eligibility for overtime pay.
Workers with the employee exemption can work more than a 40-hour workweek without being entitled to additional pay under federal law. This often means that exempt employees have greater flexibility in managing their work schedules and responsibilities since they aren’t subject to hourly wage requirements or overtime calculations.
How does the FLSA define an exempt employee?
The FLSA outlines specific criteria that must be met for an employee to qualify as exempt from overtime pay provisions. The primary factors considered include the employee's salary level, salary basis, and job duties.
- Salary level: To be considered exempt, an employee must generally be paid a salary that meets or exceeds a specified threshold set by the US Department of Labor (DOL). For a long time, this threshold has been $684 per week (equivalent to $35,568 per year) for most exempt employees. However, effective July 1, 2024, it will increase to $844 per week (equivalent to $43,888 per year). And effective Jan. 1, 2025, it will increase again, to $1,128 per week (equivalent to $58,656 per year).
- Salary basis: Exempt employees must be paid on a salary basis, meaning they receive a predetermined amount of pay each pay period that is not subject to reduction based on the quantity or quality of work performed.
- Job duties: In addition to meeting the salary threshold, exempt employees must primarily perform specific, “white-collar” job duties that are classified as executive, administrative, professional, outside sales, or computer-related. These duties are defined by the FLSA and typically involve responsibilities such as managerial decision-making, advanced knowledge or expertise, or outside sales activities.
How does the Department of Labor define exempt employees?
The DOL provides guidance on interpreting and applying FLSA exemptions and sets the thresholds for the salary levels for highly compensated employees under the law. The DOL's Wage and Hour Division conducts investigations and enforcement actions to ensure compliance with FLSA regulations, including proper classification of exempt and non-exempt employees.
What is the difference between an exempt vs. non-exempt employee?
A non-exempt employee is not exempt from the overtime pay and federal minimum wage protections outlined in the FLSA. Non-exempt employees are often paid on an hourly basis and are entitled to receive overtime pay at a rate of 1.5 times their regular rate of pay for hours worked beyond 40 in a workweek, in accordance with federal labor laws.
What are the legal consequences of misclassifying employees as exempt when they should be non-exempt?
Misclassifying employees as exempt when they should be non-exempt can result in legal consequences, including back pay for unpaid wages, penalties, fines, and potential lawsuits for wage violations. Employers must accurately classify employees to comply with labor laws and avoid legal liabilities.
How do businesses know if they are correctly classifying employees as exempt vs non-exempt?
Businesses can ensure correct classification of employees by conducting regular audits of job titles, duties, job descriptions, and compensation structures to align with FLSA requirements. Consulting legal counsel or human resources professionals can provide additional guidance on employee classification issues.
How does an employee qualify for exempt status?
To qualify for exempt status, employees must meet specific criteria related to salary level, salary basis, and job duties as defined by the FLSA and outlined above in this article:
- Under the salary level test: They must be paid at or above the minimum salary threshold.
- Under the salary basis test: They must be paid a fixed salary that isn’t subject to reduction based on the quantity or quality of their work.
- Under the job duties test: They must perform primary job duties that fall under certain roles defined by the FLSA, including:
- Executive employees, like managers or directors
- Administrative employees, like executive assistants
- Professional employees, like attorneys or software engineers
- Outside sales employees, like real estate agents or medical device sales representatives
- Computer employees, like systems analysts or network administrators
Frequently asked questions about exempt employees
Still have questions about exempt employees? Check out the FAQ below.
How does federal labor law define exempt employees?
Federal labor law defines exempt employees as individuals who are exempt from minimum wage and overtime pay requirements. Contrary to what some employers believe, exempt employees are not FLSA exempt. They’re only exempt from certain protections under the FLSA.
What are the overtime rules for non-exempt employees?
Non-exempt employees are entitled to overtime pay at a rate of one and one-half times their regular hourly rate for hours worked beyond 40 in a workweek under federal labor law. There may be additional rules at state and local levels.
Do exempt employees ever get overtime pay?
Exempt employees are not eligible for overtime pay under federal labor law, regardless of the number of hours worked. Exempt status exempts employees from overtime pay requirements.
How do businesses know if they have exempt employees?
The Department of Labor largely leaves it up to employers’ independent judgment to classify their own workers. Businesses can identify exempt employees by evaluating their job roles, responsibilities, salary levels, and exemption status criteria outlined by the FLSA and DOL regulations.
How do you classify exempt and non-exempt employees?
Some good rules of thumb are to look at salaried employees (those paid on an hourly basis are typically non-exempt), determine whether they meet salary thresholds for high earners, and then look into their job duties to see if they meet standards for executive exemption, professional exemption, or any of the other criteria under the FLSA.
Can businesses require exempt employees to work certain hours?
Employers can establish work schedules and expectations for exempt employees based on their business operations and the requirements of the job. Exempt employees are generally expected to fulfill job duties without regard to specific number of hours worked.
Do exempt employees have to work 40 hours a week?
Exempt employees are not subject to hourly work requirements—they’re just expected to complete job duties as necessary to fulfill their roles. That means they can work 40 hours like “traditional” full-time employees, or work closer to part-time hours.
Can exempt employees be paid hourly?
It’s rare, but exempt employees are sometimes paid hourly. Some common examples include agricultural and railroad workers.
What are some examples of exempt employees?
Other examples of exempt employees may include:
- Teachers
- Lawyers
- Doctors
- Business executives
- Accountants
- Managers
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.