Exempt vs. Nonexempt Employees: What Is the Difference?

If you're an employer, it’s important to properly distinguish between exempt vs. nonexempt employees. Knowing the differences protects you from violating the Fair Labor Standards Act and from paying financial penalties.

Here’s a look at what makes exempt vs. nonexempt employees distinct, so you can stay compliant with federal and state regulations.

Exempt employees are generally salaried, management-level staff who are exempt from minimum wage and overtime pay requirements. Non-exempt employees often receive hourly pay and are eligible for overtime pay rates.

According to the Fair Labor Standards Act (FLSA), the U.S. Department of Labor (DOL) requires most employees to receive at least the federal minimum wage for their work hours.

The FLSA also mandates that eligible workers receive overtime, which is 1.5 times their regular pay rate.

However, these requirements may not necessarily apply to exempt employees, such as those who have executive, administrative, professional, or outside sales roles. Let’s discuss more about what makes an employee exempt.

What is an exempt employee?

Exempt employees are often referred to as "white-collar workers." Employees exempt from minimum wage and overtime pay requirements include:

• Executive employees: This category includes salaried team members who lead organizations and have the authority to hire and fire other employees.

• Salaried administrative employees: These are workers who handle general business operations.

• Professional employees: Those whose work requires specialized or advanced knowledge, such as creative professionals or researchers.

• Computer employees: These jobs include programmers, analysts, or engineers.

• Outside sales employees: Team members who are on the road, primarily making sales or handling orders.

What is a nonexempt employee?

Nonexempt employees often engage in "blue-collar” work. This type of employee includes:

• Anyone paid a salary or hourly wage who performs manual labor or work that requires repetitive operations (such as factory or line work)

• First responders, including police, fire department personnel, and paramedics

• Employees who collect a salary or payment at an hourly rate that results in less than $684 per week in wages

Salary refers to a payment method in which employees receive a set pay rate for their work, regardless of the hours worked.

Salaried employees are often exempt from overtime pay laws. But they generally have more say about when they work. That said, salaried employees may have to work more than 40 hours a week.

Because of this, personal time and work time for the salaried employee often blend together. It’s important for managers to ensure they emphasize work-life balance for salaried workers.

Salaried employees are often elligible for employer-provided benefits. These include health insurance, retirement plans, and paid time off, which hourly employees may not receive.

For hourly employees, one of the greatest benefits is being able to receive overtime. However, hourly employees are not always eligible for health, retirement, and other benefits, such as paid family leave.

Read about differences between hourly and salaried employees here.

From an employer's standpoint, an exempt employee generally commands a higher level of salaried pay than a nonexempt one. Having exempt employees is preferred in positions that often require them to work over 40 hours a week or flexible hours.

Having nonexempt and hourly employees means following timekeeping requirements to ensure that your team members obtain overtime pay for hours exceeding the 40-hour workweek. Most employers use one of these options:

• A time clock that records when the employee "clocks in" and "clocks out" of work

• Timekeepers, whose positions consist of recording the hours that employees work or entering timecards into a time management system

• Time tracking software, such as that which is offered by Hubstaff

Hubstaff's time tracking tools include the ability to create and manage employee schedules, track overtime hours, invoice clients, and automate payroll.

Keeping track of the time your full-time and part-time employees work is integral to complying with FLSA regulations.

Hubstaff's all-in-one time tracking software can easily help your human resources team manage salaried and hourly workers. It’s easy to view schedules, shifts, paid time off, in-depth reports, and more.

Take it for a test drive with our free 14-day trial.