Employer guide to non-exempt Vs exempt employees
As an employer, it is vital to know whether an employee is classified as exempt or non-exempt. In this blog, we will look at what differentiates these types of employees.
WHAT ARE EXEMPT EMPLOYEES?
According to the American Payroll Association, now re-branded as PayrollOrg, an exempt employee does not need to be paid the minimum wage or overtime pay; with this, the employer does not need to record details involving their work (such as hours worked).
Over the years this has been updated to reflect our ever-changing workforce. This has caused many businesses to re-evaluate whether their employees are truly exempt or not.
ARE EXEMPT EMPLOYEES SALARIED?
In the past, any employee earning less than $455 per week was generally thought to be non-exempt, and therefore entitled to overtime pay regardless of whether they were hourly or salary.
The Department of Labor (DOL) then announced a proposed update to that salary threshold to promote fair pay for a day's work. After a few proposed changes, the salary threshold was set to $684 per week. This change forced employers to take a harder look at who should be classified as exempt and who was non-exempt.
This salary threshold is once again under review, with the DOL proposing a new salary threshold of $1,059 per week. While this new limit has not yet been put in place, it is safe to assume that the salary threshold in exempt vs. non-exempt classification will continue to be updated as time goes on.
WHAT ARE THE REQUIREMENTS OF BEING AN EXEMPT EMPLOYEE?
To qualify as an exempt employee, certain criteria must be met regarding job duties and the salary thresholds must not be surpassed. The salary cannot be modified based on aspects such as the quality or quantity of the work, and the salary must be the same amount each week and paid regularly.
Some common exempt professions include outside sales, computer employees, and administrative professionals. Specific jobs include being a teacher, a software engineer, or an office manager. With all these jobs, it is easy to see how they fit the definition of an exempt employee.
SHOULD EXEMPT EMPLOYEES BE PAID OVERTIME?
While some states do have overtime pay provisions, many do not, which means those employers must follow federal pay requirements under the Fair Labor Standards Act (FLSA). If a state does set its own rules regarding overtime pay, it can only be enforced for those who are covered under the FLSA if the rule is more favorable to the employee than the federal rule.
DO EXEMPT EMPLOYEES GET HOLIDAY PAY?
The Fair Labor Standards Act does not allow employers to lower the pay for exempt employees for a holiday. The salary must still be paid in full regardless of whether the employee actively worked the holiday or not. This is a key difference between exempt and non-exempt employees, as holidays are a discretionary benefit that the employer has the choice to include in their benefits package when dealing with non-exempt employees.
CLASSIFYING YOUR EMPLOYEES
To ensure you are adequately classifying and paying employees, review the above notes and determine whether your employees are exempt or non-exempt. If you need assistance determining this, we recommend contacting your company lawyer to assist in distinguishing what your employees should be classified as.
NEXT STEPS
Knowing whether to classify your employees as exempt or non-exempt is critical for getting your payroll right. Our expert payroll team provides a full payroll service from one platform, with customizable reports tailored to your organization. Outsourcing your payroll can remove the burden of ensuring you are complying with current rules and regulations.
Arrange a no-obligation payroll demo to find out more, or speak to our payroll team.
Sources: https://www.dol.gov/whd/overtime/fs17r_geico.htm
APA’s Guide to State Payroll Laws 2016 Edition