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Exempt vs. Non-exempt - What's the Difference?

Posted by Lauren DiChiacchio on Jul 25, 2013 10:09:00 AM

Staffing Services, Behavioral Health Staffing, Healthcare Staffing, Staffing Services While the world waited breathlessly for William and Kate to give their baby a name, how you identify your employees, exempt or non exempt, is just as important. Why? Because the Fair Labor Standards Act (FLSA) has specific requirements regarding overtime pay. If you mis-classify an employee, your organization is subject to severe fines. And, while no one wants to pay fines, let's remember that the intent of the law is to protect the worker from abuse by the employer.

It's All About The Overtime

Nonexempt employees are those that are paid on an hourly basis and are covered by the FLSA’s minimum wage and overtime pay provisions. These employees keep records of the specific hours they work so that they are paid overtime when they work more than 40 hours in a workweek. Overtime is paid at 1.5 times the employee's hourly rate.

You must also classify an employee as nonexempt if they do not qualify for one of several white-collar exemptions that can be found in Section 13(a)(1) of the FLSA. These exemptions are for a bona fide executive, administrative, professional, and outside sales employees.

Generally, non-exempt employees’ work is routine with set standards and rules. Depending on the individual’s job duties, examples of non-exempt positions may include positions such as a bank teller, bookkeeper, customer service workers, pharmacy assistants, office coordinators, and more.

Exempt employees in general must meet two requirements:

  1. They must earn a minimum salary of at least $455 per week. (There are exceptions: Computer programmers, systems analysts, and similar employees may be exempt if they are paid at an hourly rate of $27.63 or more).

  2. They must hold a position with duties the U.S. Labor Department designates as appropriate for exempt positions.

Exempt employees receive their full salary every pay period. Their salary is never reduced because of variations in quality or quantity of work performed or generally for absences of less than a full day. Exempt employees cannot have their salary reduced for absences determined by the employer or by the operating requirements of the business. So if there is no work to do or the weather is really bad and you send an exempt employee home, you cannot reduce their salary.

These positions generally fall into six categories: executive, administrative, learned professional, computer professional, creative professional and outside sales.

Since there are nuances to these classifications and the laws surrounding them, we urge you to review the Fair Labor Standard Act directly and if you’re still confused, consult a labor attorney.

How to Protect Your Organization

As we mentioned earlier, there are nuances and exceptions to these classifications so it is not always easy to make a determination. You can't use a job title as the sole basis for classification. You must review the job duties associated with the position and you should review these positions regularly.

A good starting point is to create and maintain up-to-date job descriptions. Take the time to detail the duties of the position, how and where the employee will work, who they report to and how their time will be managed. You can learn more about the importance of creating job descriptions from our E-Book, "Your Guide to Effective Job Descriptions."

If you believe that you do not have the qualifications to do this internally, hire an outside resource to help you. A good analyst will help you consider the primary purpose of the position and how the tasks associated with the position fit with the purpose. They may use organization charts, compare similar positions, and will have a deep understanding of the FLSA guidebooks and current legal opinions governing FLSA administration. There are many factors to consider when making a classification.

The Consequences

If you're the HR Manager responsible for classifying employees, here is a cautionary tale that individual business owners and management members can face claims of personal liability for federal FLSA violations:

In a recent decision, Irizarry v. Catsimatidis, the court found that a supermarket company's owner, chairman, and CEO was an "employer" within the FLSA's meaning and was therefore personally liable for millions in FLSA collective-action liability.  The court so concluded even while acknowledging that there was no evidence that the owner himself either was responsible for the FLSA violations or ever directly managed or interacted with the plaintiffs.

There is an abundance of case law and horror stories on organizations that have paid heft fines for violating FLSA. You can ensure your organization doesn't fall into that group by taking the time to understand the law and putting policies and practices into operation within your organization.

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