Exempt Vs Non-Exempt Classifications

Let’s discuss exempt versus non-exempt classifications, and specifically how those determinations are made in accordance with Federal guidelines and State guidelines. First, let's examine what is an exempt employee and a non-exempt employee

In a nutshell. An exempt employee is exempt from overtime and most time keeping requirements.

A non-exempt employee is one who must be paid overtime of time and a half. If they work more than 40 h in a 7-day work week.  Additionally, proper timekeeping must be kept.

It has been estimated that 95% of the American workforce is not exempt. Therefore, we'll focus on what defines an exempt employee.

There are 3 factors in determining whether or not an employee is exempt.

·      pay, rate

·      job duties and

·      responsibilities

It is of the utmost importance that you correctly classify your employees to avoid a department of labor audit wage claim and even IRS fines.

Now let's examine each determining factor for classifying an employee as exempt. The first is pay rate.

Currently exempt employees must earn at least $684 a week, or 30, $35,568 annually, and that's not counting lodging, board and other like payments.

An exempt employee must have defined job duties in the normal course of their workday, not the occasional exception. Simply holding a title that appears to be supervisory or managerial title or because an employee is high value to your company does not necessarily mean that that employee is defined as exempt.

Finally, an exempt employee must have certain responsibilities that are managerial or supervisory in nature.

Managerial exemptions are the most common under a managerial exemption. An employee must supervise a division or a department within the company. This means the direct management of 2 or more full-time employees and the ability to be able to hire and fire, or at least have significant input into those decisions.

Then there are administrative exemptions under DOL guidelines. The employee generally works in an office setting and has responsibility for the general workflow of the Company's operations.

Under administrative exemption. The employee would have discretion and independent judgment on major company decisions.

But beware! The administrative exemption is the most commonly misunderstood and misused exemption. Employers often classify as secretaries, administrative assistants, HR generalists, and other general office personnel as exempt. In most cases this is an error unless they have defined supervisory capacity, and has supervisory capacity in at least 80% of their job duties.

The third exemption would fall under the category of professional exemptions. This is where an advanced knowledge in the field of study would classify being a CPA, MBA,CFP or some other professional designation. As long as they are performing in their specific area of expertise could be classified as an exemption.

Some types of salesmen may also be classified as exempt. The most common are over the road, and often out of the office type salesman. The salesmen must be independent and able to make decisions on their own without specific guidelines from the company.

Salesperson, who works within an office building would not be considered to be exempt.

IT Tech can be classified as an exempt employee if they earn a certain wage rate. In some States such as California IT tech could be exempt.

Those employees earning over a hundred $1,000 a year may be classified as exempt providing that they perform at least one of the previously stated duties.

Generally speaking, employees who perform duties associated with general labor. or who have specific performance. Guidelines would not be considered to be an exempt employee.

What is the difference between the compensation of the 2 classifications? Employees who are classified as exempt are paid a salary; non-exempt employees can be paid either a salary or per hour.

However, a non-exempt employee is paid a salary, and if they work overtime, you must pay them their overtime rate based upon their weekly salary.

It is important for the employer to reevaluate on a periodic basis, and certainly no less than once a year. Often, the exempt employees, duties and responsibilities, shift over time to where an initial exempt classification to what would be now non-exempt classification. And it's up to the employer to make sure that if there was a shift either the responsibilities are updated to meet the correct classification of exempt, or the exemption is updated to non-exempt

Sigma 6 HR Benefits is a full service, Human Resource Management Company. Our clients are small to mid-size companies that generally have anywhere between 10 and 99 employees. Sigma6 HR provides companies with a full-time human resource department with an affordable monthly schedule of payment, or we can provide basic Hr. Services for an annual service fee.

Contact me at support@sigma6hr.com, or give me a call at (502) 292-2980.

I will be happy to discuss the best option for your business

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