A challenge many HR professionals face is understanding employee classifications under the federal Fair Labor Standards Act (FLSA). When compensating employees, understanding whether they are classified as either non-exempt or exempt is crucial for payroll accuracy, specifically regarding calculating overtime pay and minimum wage.

This article explains what it means to be either a non-exempt or exempt employee, how it relates to FLSA, and the consequences of failing to classify employees correctly.

What Is an Exempt Employee?

According to the FLSA, an exempt employee is a worker who is NOT entitled to overtime pay or covered by minimum wage requirements. These employees are generally paid a salary. 

Classifying whether an employee is exempt depends primarily on the duties the employee performs and the salary amount they earn. The U.S. Department of Labor requires that employees pass both the Salary Level Test and the Job Duties Test to be considered exempt.

Salary Level Test

The Salary Level test is used to determine if employees are paid on a salary basis at an amount that qualifies for exemption. Currently, an employee is classified as exempt if their salary equates to at least a minimum of $684 a week ($35,568 annually).

There have been attempts to raise the salary level threshold for exemption as recently as 2024. However, the most recent FLSA federal court ruling regarding the salary threshold reinstated the threshold that took effect in 2019.

Keep in mind that some states may have higher Salary Level Test requirements or a higher overtime exempt salary threshold, which can change who is exempt and who is not.

Job Duties Test

Evaluating whether a worker is exempt based on their job role is a more intricate process, as there are certain categories that workers may fall into. The FLSA classifies employees based on specific duties for different job categories.

The following types of workers are considered exempt under the FLSA:

• Executive
• Administrative
• Professional (learned or creative)
• Computer Employee
• Outside Sales
• Highly Compensated Employees
  
  • Must be compensated with at least $107,432 annually (including at least $684 per week on a salary basis)

Generally, all of the mentioned exemption categories are management positions with a particular level of authority and / or a specialized skillset.

Examples of Exempt Workers

Here are some examples of exempt employees based on each category:

• Executive: store managers, general managers, head of a department
• Administrative: HR professionals, financial analysts, marketing coordinators
• Professional:
  
  • Learned Professionals: engineers, teachers, scientists, lawyers, doctors
  • Creative Professionals: journalists, writers, graphic designers, artists, actors
• Computer Employee: software engineers, programmers, database managers (IT or help desk staff are NOT included)
• Outside Sales: field sales representatives or door-to-door salespeople (telecommunication and online workers are NOT included)
• Highly Compensated Employees: senior executives, company owners, top-earning employees

Note that not all exempt employees are paid on a salaried basis. There are some exceptions where hourly employees may be exempt. Typically, these employees are governed by other federal regulations tied to specific industries, ultimately exempting them from certain FLSA requirements.

Examples of industries where employees may be paid an hourly rate and still be FLSA exempt include:

• Certain agricultural employees
• Certain railroad employees
• Certain movie theater employees

What Is a Non-Exempt Employee?

A non-exempt employee is a worker who is covered under FLSA and is entitled to both minimum wage and overtime pay. on-exempt employees can include those who receive wages on an hourly basis or salaried workers who do not pass the Salary Level Test.

Examples of Non-Exempt Employees

Because there are no specific duties a worker must fulfill to be non-exempt, there are many different types of examples of non-exempt workers.

Here are some examples of non-exempt employees throughout different industries:

• Retail: cashiers, stock attendants, and other on-the-floor employees
• Constriction / Repair: carpenters, electricians, and mechanics
• Food Service: food servers, bussers, and line cooks
• Public Service (First Responders): police officers, firefighters, and paramedics
• Healthcare: medical assistants and front desk receptionists

Independent Contractors Under FLSA

Legislation under the FLSA specifies rules on classifying employees vs independent contractors. Specifically, the rulings determine that independent contractors are NOT considered employees and are therefore not covered under FLSA. This means that any employee who is classified as an independent contractor is considered exempt and therefore is NOT entitled to minimum wage and overtime pay.

Exempt Vs Non-Exempt Workers Overview

To summarize, here’s a chart that outlines the main differences between exempt and non-exempt workers:

*Some exceptions allow certain hourly workers to be exempt under other federal legislation

Penalties for Misclassifying Exempt and Non-Exempt Workers

The importance of understanding employee classifications is crucial, as misclassifying workers can become a costly a legal disaster.

Employers who misclassify an employee may incur the following:

• Back pay in lost wages (if misclassified as exempt)
• Liquidated damages that equal the amount of wages owed
• Civil penalties up to $1,000 for each violation
• If violations are deemed willful, criminal prosecution leading to a fine of up to $10,000 and / or imprisonment

Final Thoughts on Exempt Vs Non-Exempt Workers

Compensating employees accurately requires precise knowledge of federal employment laws. As the FLSA amends new regulations year after year, employers must practice compliance procedures that evolve with each adjustment made. However, the fundamentals of FLSA compliance revolve around classifying employees correctly, whether they are exempt or non-exempt.

Many employers find labor law compliance easier to manage when using an HR consulting service that helps ensure basic labor law compliance is met, among many other complex HR tasks. If your company needs help with FLSA employee classification, contact us today.