Correctly running payroll means knowing the difference between exempt vs. nonexempt employees. You will need to categorize employees into appropriate groups based on their job duties and responsibilities. What is the difference between exempt and nonexempt employees?
Exempt vs. Nonexempt
Your employees will either be exempt or nonexempt. Categorizing exempt vs. nonexempt employees affects how you process payroll. The Fair Labor Standards Act (FLSA) sets the guidelines for determining how to classify employees.
According to the FLSA, nonexempt employees must be paid at least the federal minimum wage and receive overtime pay for hours worked over 40 hours a week. Overtime pay is at least one and a half times their hourly rate.
Some states have different laws for minimum wage and overtime pay. You will need to check with your local Wage and Hour District Office for more information.
Many employees who are nonexempt are hourly workers instead of salaried. However, nonexempt employees can be salaried workers. You need to know how to calculate overtime pay for salaried employees.
Nonexempt employees have non-managerial positions. Clerical workers are examples of nonexempt employees.
Exempt employees are not protected by the FLSA. According to the FLSA duties test, an employee must meet the following three exempt employee requirements to be considered exempt:
- The employee must make at least $23,660 per year or $455 per week ($35,568 annually or $684 per week in 2020)
- The employee is paid on a salary basis
- The employee has job duties that are considered exempt
Exempt job duties include high-level responsibilities that directly affect the company’s overall operations. The FLSA provides additional guidelines for exempt job duties and separates them into three basic categories.
Executive job duties
Executive jobs are those that involve supervising two or more employees as a major part of the position. An exempt executive position has direct input on an employee’s status, including assigning tasks, hiring, and firing.
Administrative job duties
Administrative positions must directly support the business’s main activities. Examples of administrative positions include staff in human resources, payroll and accounting, and marketing and public relations. Administrative positions are non-clerical and require independent judgment and discretion when making significant business decisions.
Professional job duties
Positions that require a high level of skill or education classify as professional jobs. Examples include doctors, lawyers, architects, writers, journalists, musicians, and actors.
Keeping track of exempt and nonexempt employees
To maintain payroll reporting compliance with the FLSA, you will need to designate your employees as either exempt or nonexempt from the moment they are hired. This will help prevent any miscommunications or errors in how their hours are tracked.
You will need to keep timesheets for nonexempt employees so they can easily track their hours and any overtime worked. Also, track hours worked by salaried employees to keep track of vacation time, sick days, and hours worked.
With Patriot’s online payroll software, keeping track of all your employee hours is easy. Our three-step process makes it easy for you to run your payroll. Add our online time and attendance software so your employees can clock in and clock out online. Try it for free today!
This article was updated from its original publication date of 6/24/2015.
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