Sep 24, 2024

Is This Your Situation: Sorting Out Exempt vs. Nonexempt Employees

Some employees have to be paid their hourly wage, or even more, if they put in extra time. Others are expected just to put in the extra time anyway. Read through for an introduction to the complex world of exempt vs. nonexempt employees.

If you have forklift operators in your warehouse, for example, and it's a busy time of year, be prepared to pay them extra as they work into the evening and even on weekends. The same goes for secretaries. But not your vice president of marketing. So why not just make everyone a vice president and avoid all overtime? It's not that simple, however, and to avoid trouble with regulators, employers should learn who gets overtime, when they get it and how much they get.

To know whom you have to pay for overtime, the first step is learning about the Fair Labor Standards Act, or FLSA. The FLSA is a federal law that sets:

• Minimum wage.
• Overtime rules.
• Record-keeping requirements.
• Child labor laws.

The FLSA applies to almost every employee, although employees of small construction companies and those working for small, independently owned retail or service businesses might be exempt.

To figure out who has to get overtime, look to the job, not the way the employees are paid. Each organization decides which jobs are eligible for overtime, but the decision involves judgment, and it's not always clear whether or not a job is exempt from the FLSA. 

Making a Decision

The common terms "exempt" and "nonexempt" refer to whether someone is covered by the FLSA. You have to pay nonexempt employees overtime. They are covered by the FLSA overtime rules. Nonexempt employees typically:

• Operate under close supervision.
• Perform routine or repetitive work.
• Don't supervise the work of other people.
• Don't make decisions that require independent thinking or judgment.

Typical nonexempt jobs include accounting clerk, licensed practical nurse, bank teller and paralegal.

Calculating Overtime: You must pay nonexempt employees 1 1/2 times their regular pay rate for every hour over 40 worked in a week.

Want to pay nonexempt employees a salary? Make sure it's at least the minimum hourly wage, and then add overtime. Employees can't waive overtime or roll their hours into the next week to keep you from paying overtime. That is, you may not have an employee work 50 hours one week and 20 hours the next and say that since the two weeks average less than 40 hours, no overtime is owed.

Exempt Employee Threshold: To be exempt from overtime, an employee must generally be paid a salary and must earn a certain minimum wage, as set by the Department of Labor, and there are only a few exceptions. In most circumstances, employees earning up to a certain threshold (which is subject to change) must be paid overtime after 40 hours, no matter what title or job duties they have.

No Reductions for Partial-day Absences: To maintain an FLSA exemption, you must pay exempt employees their full salary every week, regardless of the quality or quantity of their work. You can't reduce an exempt employee's salary for absences that are less than a full day.

No Deductions for Company or Business Reasons: Exempt employees must be paid if they are ready, willing and able to work. If you shut down for a snow day or you don't have work for employees, you can't cut your exempt employees' salary, but you can count the lost day as paid time off.

Some Whole-day Deductions Allowed: The law allows you to deduct from an exempt employee's salary in whole-day increments when an employee is absent for personal reasons or you've suspended the person for disciplinary purposes.

This is just the beginning. There are a lot of fine points in determining who is and isn't exempt and what the overtime rules are. And there are a number of occupations that allow certain exceptions. Also, state rules may add additional layers of complexity. If you're not sure about employee classification or whether you owe overtime, please give us a call, and we'll help you with your particular situation.

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