What Is the Difference Between Exempt and Nonexempt Employees?

The difference between exempt and nonexempt employees is who gets paid overtime and who doesn't. Not knowing the difference between these categories could cost you a lot of money. Employees who qualify as "exempt" are exempt from overtime regulations (and minimum wage laws), whereas "nonexempt" employees must be paid for every hour of overtime they work. The federal Fair Labor Standards Act (FLSA) and the laws of the 50 states regulate what constitutes "overtime."

Many employers incorrectly believe that all salaried employees are exempt or that by paying an employee a salary, they automatically become exempt. However, just as the labels "employee" and "independent contractor" don't determine a worker's actual status in the eyes of the IRS, the same is true for exempt and nonexempt employees in the eyes of the federal and state labor departments. Exempt and nonexempt status has little to do with job titles and whether an employee is salaried or receives an hourly wage (although in practice, hourly workers are never "exempt"). The legal definition of "exempt" and "nonexempt" has much more to do with an employee's level of responsibility or his or her status as a professional.

The U.S. Department of Labor specifically designates certain classes of workers as exempt, including executives, administrative personnel, outside salespeople, highly skilled computer-related employees and licensed professionals, such as doctors, lawyers, architects, engineers and certified public accountants, among others. In addition, managers who hire and fire employees and who spend less than half their time performing the same duties as their employees are typically also exempt employees. In general, the more responsibility and independence or discretion an employee has, the more likely the employee is to be considered exempt.

For more, read Are Your Employees Exempt? and Which Employees Are Exempt from Overtime Regulations?


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