Correctly classifying your team is essential for legal compliance and fair pay. It determines eligibility for overtime, minimum wage protections, and other key benefits—building transparency and trust. Knowing the difference between exempt and non-exempt statuses helps businesses stay compliant while ensuring people are compensated fairly.
Under the United States’ Fair Labor Standards Act (FLSA), exempt and non-exempt classifications define who qualifies for overtime pay. Getting this right supports legal compensation and helps companies avoid compliance risks.
In this article, we’ll break down what exempt and non-exempt statuses mean, why they matter, and how to approach classification effectively.
What are exempt employee statuses?
Exempt and non-exempt employee statuses are taken from the FLSA employee classification system. Exempt employees earn a salary, not an hourly wage. They are exempt from receiving overtime pay and cannot qualify to receive it. Exempt employees make a minimum of $58,656 a year and are generally skilled professionals working in white-collar positions. Doctors, lawyers, accountants, HR managers, and engineers, for instance, qualify as exempt.
What are non-exempt employee statuses?
Non-exempt employees, in contrast, earn hourly wages. The FLSA establishes protections for non-exempt employees to ensure they receive fair compensation for their work. Non-exempt employees must receive minimum wages that align with the federal or state wage laws. In addition, some jurisdictions require meal and rest breaks, further supporting fair labor conditions for non-exempt workers.
Unlike exempt employees, non-exempt employees qualify to receive overtime pay when they work over 40 hours a week. Cashiers, bookkeepers, and skilled tradesmen, such as plumbers and electricians, are typically non-exempt. Some states have additional wage laws that extend these protections, such as requiring overtime pay for people who work more than a set number of hours in a single day.
Why should HR leaders care about exempt and non-exempt employee status?
Understanding exempt and non-exempt employee statuses enables HR leaders to ensure that people receive compensation that accurately reflects their classification. Paying people in adherence to the law helps employers avoid lawsuits while also contributing to fair treatment of employees. Ultimately, properly integrating exempt and non-exempt employee status policies shows people that their company takes them seriously, setting the foundation for an engaged, productive workforce.
<<Streamline compliance management with a free HR compliance checklist.>>
How to classify exempt vs. non-exempt employees
Classifying a team member accurately as exempt or non-exempt depends on how people are paid, the nature of their work, and their job responsibilities. People must meet all the requirements to be exempt. Otherwise, their employers are subject to minimum wage and overtime regulations.
Salary vs. hourly and full-time vs. part-time
Non-exempt employees are paid hourly and qualify for overtime payment—at least 1.5 times their regular hourly rate—when they work more than 40 hours a week.
Exempt employees earn a salary, meaning they receive the same amount regardless of hours worked. This applies to both full-time and part-time team members. However, simply being salaried doesn’t automatically qualify someone as exempt. Other criteria, like salary level and job duties, are equally important.
Salary level
For people to qualify as exempt, their base salary must meet the minimum threshold set by the FLSA: $1,128 per week or $58,656 annually. The regulations require executive, administrative, and professional (EAP) employees to be paid at least that amount to be exempt from the FSLA’s minimum wage and overtime requirements.
HR teams should review salaries and the FLSA’s minimum protections regularly to ensure compliance and avoid legal risks.
Job duties
Job titles alone don’t determine exempt status. To be classified as exempt, a professional must pass one of the U.S. Department of Labor’s (DOL) duties tests. Their responsibilities must align with those defined under exemption categories such as administrative, professional, executive, computer, or outside sales.
Individuals earning at least $151,164 per year who regularly perform office work at least one of the duties of an exempt executive, administrative, or professional employee are also exempt.
Exemptions do not apply to:
- Manual laborers or other “blue-collar” workers who perform work involving repetitive operations with their hands, physical skill, and energy
- Police, firefighters, paramedics, and other first responders
View the complete DOL fact sheet here.
| Requirement | Non-exempt | Exempt |
|---|---|---|
| Payment basis | Paid hourly and eligible for overtime pay | Paid a fixed salary regardless of hours worked |
| Salary level | No minimum salary level required beyond minimum wage laws | Must meet or exceed minimum threshold set by local law |
| Job duties | Tasks do not fall under exempt duty classifications | Perform executive, professional, or administrative tasks as defined under local regulations |
To be exempt, the person must meet all the FSLA requirements. Otherwise, they’re entitled to minimum wage and overtime pay when they work more than 40 hours per week.
Exempt employee example
Role: Marketing manager
- Payment basis: Receives a fixed biweekly salary
- Salary level: Earns above the minimum threshold for exempt status in their jurisdiction
- Job duties: Oversees strategic campaigns, manages a team, exercises independent judgment, and makes high-level decisions
This person’s employer is not required to pay them overtime.
Non-exempt employee example
Role: Customer support representative
- Payment basis: Paid hourly based on time worked
- Salary level: Earns at or above the local minimum wage, but below the exempt threshold
- Job duties: Handles support tickets, follows scripted responses, and escalates complex issues to managers
The employer must pay the person overtime if they work more than 40 hours within a week.
How to manage employee status misclassifications
When misclassifications happen, they can lead to challenges such as back pay for overtime, fines, or legal disputes. A team member might be misclassified if their job responsibilities evolve over time, shifting them into a different classification without an official update. Changes in salary can also impact classification, especially if pay falls below the FLSA threshold for exempt employees. Additionally, updates to labor regulations may redefine classification criteria, making it essential for organizations to stay informed and regularly review employee status.
Correctly classifying team members as exempt or non-exempt builds trust, ensures fair compensation, and keeps organizations compliant with labor laws. When people understand how their roles are classified and feel confident that their pay aligns with their work, it strengthens engagement and fosters a more transparent workplace.
How to reclassify a team member from exempt to non-exempt
Sometimes, it’s necessary to reclassify someone from exempt to non-exempt. When reclassifying, it’s important to communicate clearly with the team members. You’ll also need to adjust payroll systems to reflect the shift, to ensure that overtime pay calculations are correct. Train the team member on time tracking procedures, overtime policies, and any new expectations regarding work hours. Revising job descriptions and notifying managers of the change also helps ensure consistency across the organization.
Stay on top of FLSA guidelines and review classifications regularly. A little proactive effort today can prevent big legal headaches tomorrow.
Can a person hold both exempt and non-exempt roles?
Yes, a person can hold both exempt and non-exempt roles within the same organization, but it requires careful planning to stay compliant with the FLSA. This typically happens when someone has two distinct sets of responsibilities—one that qualifies as exempt and another that falls under non-exempt criteria. For instance, someone might have an administrative role that’s exempt while also performing hourly, non-exempt tasks like customer service.
HR teams play a key role in making dual-role arrangements work. Keeping communication open, maintaining accurate records, and being transparent about expectations can help organizations handle these situations smoothly and meet compliance requirements.
How to implement effective exempt and non-exempt employee status practices
HR leaders can incorporate the following practices to create an organized and effective system for managing exempt and non-exempt employee statuses:
- Communicate systematically with managers. To ensure people receive proper payment according to their status, department and line managers should notify HR leaders regarding promotions or changes in a team member’s compensation plan. Regular collaboration keeps the lines of communication open so teams can be aware of crucial changes or new information.
- Stay on top of the rules. Knowing the federal and state laws concerning exempt and non-exempt employee status is essential. However, the difference between exempt and non-exempt employees is not always clear: The classification depends on the person’s role and level of compensation and on the content of work. If necessary, consult with a professional compensation attorney to clarify complex employment issues.
- Make the information accessible to people. Include a section in the employee handbook that explains work schedule expectations. Outlining detailed, straightforward policies concerning overtime, breaks, and work-from-home (WFH) can help clarify any confusion. In addition, personnel should sign a document during onboarding that says they’ll adhere to the employment laws and conditions.
Key takeaways
- Exempt employees earn a salary and don’t qualify for overtime, while non-exempt employees are paid hourly and must receive overtime
- Employees must meet FLSA salary thresholds and fit specific job categories to be exempt
- Some states have stricter wage and overtime rules beyond federal requirements
- Proper employee classification policies ensure fair pay, compliance, and workforce engagement
Support your team members with accurate exempt and non-exempt employee status classifications
Knowing the ins and outs of exempt and non-exempt employee statuses enables employers and team members to adhere to the law. Seamlessly incorporating exempt and non-exempt employee policies means HR leaders can create a smoother process while helping employers stay compliant with regulations.
Beyond compliance, clear and fair classification ensures that team members feel valued and compensated appropriately for their work. When organizations prioritize transparency and fairness in pay structures, they foster trust, engagement, and long-term retention, creating a stronger, more positive company culture.
Exempt and non-exempt employee status FAQs
What laws impact exempt and non-exempt employee statuses?
The Fair Labor Standards Act is the key law that defines exempt and non-exempt employee classifications in the United States. It establishes rules around minimum wage, overtime pay, and recordkeeping. Employers are required to follow these guidelines to ensure fair pay practices and avoid compliance issues.
State and local laws also play a role. They may set higher wage thresholds or add specific overtime rules, depending on the jurisdiction. HR leaders who stay informed about both federal and local requirements can ensure their classification practices align with employment laws.
Recommended For Further Reading
Are taxes handled differently for exempt and non-exempt employee statuses?
No, there’s no difference in how taxes are handled for exempt and non-exempt employees. Both classifications require federal, state, and local taxes to be withheld from paychecks. Employers deduct income taxes, Social Security, and Medicare contributions for everyone on the payroll.
That said, hourly wages and overtime for non-exempt employees can lead to more variation in taxable income compared to exempt employees, who typically receive a fixed salary. Clear and accurate time tracking helps ensure non-exempt team members’ tax withholdings are correct.
Are independent contractors exempt or non-exempt?
Independent contractors aren’t classified as exempt or non-exempt because they aren’t employees. They’re self-employed professionals who provide services to businesses under a contract. That means they don’t qualify for overtime pay, minimum wage protections, or employee benefits under the FLSA.
Instead, independent contractors handle their taxes independently. They’re responsible for paying self-employment taxes, which include contributions to Social Security and Medicare.
