One topic that generates a lot of confusion in people’s personal finances is what is the difference between exempt and nonexempt employees?
There are actually a lot of nuances and pages of labor law that deal with the difference between nonexempt and exempt employees. However, the practical implications of what it means to be an exempt employee or non exempt employee are pretty straight forward.
Basically, it comes down to whether you have to be paid for overtime or whether you have to be paid the minimum wage.
What Is An Exempt Employee
The definition of exempt employee is one who is not subject to the minimum wage or overtime rules of the Fair Labor Standards Act, or FLSA.
An FLSA exempt employee must fall into one of several categories to qualify as exempt. What determines exempt employee by labor law standards is what role the employee has in their job. A job title is not enough to make an employee exempt.
There are several types of exempt employees including certain employees under age 20, employees of a motor carrier (drivers), and certain types of seasonal and farm workers. In addition, a broad category of salaried exempt employee allows certain employees to be exempt from federal labor law provisions.
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Salaried Exempt Employee
A salaried exempt employee is an employee in one of several jobs including executive, administrative or professional employees as defined in the FLSA. Certain computer employees can also be exempt from overtime provisions provided they are paid a wage of at least $27.63 per hour.
Non-salaried Exempt Employee
Certain people who are not paid a salary can also be exempt employees. Non-salaried exempt employees include drivers, farmworkers, workers at automobile dealerships and seasonal and recreational employees (ski areas, amusement parks).
Commissioned sales employees of retail or service establishments are also exempt from overtime rules as along as more than half of the employee’s earnings come from commissions and the employee averages at least one and one-half times the minimum wage for each hour worked.
Other Exempt Employees
Certain people are exempt from either the minimum wage standards or overtime rules just from being in one of several defined jobs.
FLSA Exempt Positions:
- Airline employees
- Babysitters
- Boat salespeople
- Workers with disabilities
- Fishing industry employees
- Local delivery drivers
- Newspaper delivery
- Railroad employees
- Seamen on both American and non-American vessels
- Taxi drivers
- Youth employed by their parents
What Being Exempt Means
On a practical basis, for most people, being an exempt employee means that you do not earn overtime pay for working more than 40 hours per week. Most professional employees make well above the minimum wage, so any exemption to being paid minimum wage is moot.
Jobs with minimum wage exceptions are typically those that involve either earning tips or commissions and those where the employee is a minor or under age 20. Generally, these jobs are not exempt from paying overtime, although one and a half times the low hourly rate they pay isn’t a big difference many times.
Current Minimum Wage
The current federal minimum wage is $7.25 per hour. Many states, and even some local governments, have their own minimum wage. To be valid, a state’s minimum wage must be higher than the federal minimum wage, otherwise, the employee must be paid at least the federal minimum wage.
The U.S. Department of Labor provides numerous online resources about employment law and labor law including a Handy Reference to the Fair Labor Standards Act.