Paying employees can be a complicated procedure. A company needs to comply with many different rules and regulations, like the Fair Labor Standards Act (FLSA), administered and enforced by the U.S. Department of Labor. FLSA protects employees against unfair compensation practices.
Employment regulations are diverse and have a wide range of coverage to keep both the employees and employers pleased. However, the federal minimum wage and employees’ rights to overtime compensation are the most important elements. Companies need to be aware of all the regulations to run a business. That is why determining a worker’s FLSA status holds such a great importance.
What is the Difference Between Exempt and Nonexempt?
According to FLSA, there are two different kinds of employees: exempt and nonexempt. To comply with the FLSA specifications for determining a worker’s status, the companies must understand and differentiate between exempt and nonexempt employees.
Many aspects can allow for differentiation between these two. However, in simple terms, an exempt employee is an employee that receives a salary for the work that they do, and a nonexempt employee is one that’s paid by an hourly rate.
Let’s break down what other features differentiate these two.
To be labeled as exempt, the employee must meet three conditions:
- Salary payment
Exempt employees are paid a salary rather than an hourly rate. Therefore, they are exempt as long as they are entitled to a monthly base payment more than the FLSA minimum level. This is regardless of the number of hours they work each week.
For example, to be exempt in 2020, employees had to earn a minimum of $684 per week or $35,568 per year. Employees earning less than this amount were are classified as nonexempt.
- Job responsibilities
The exemption only applies to individuals who have professional jobs that demand a higher degree of experience and knowledge.
- Total earnings
Exempt employees must meet the FLSA salary level.
Nonexempt employees are entitled to the federal minimum wage and overtime pay, which is estimated as one and a half times their hourly rate for each hour worked over the regular 40-hour workweek.
These are the regulations stated in the federal FLSA for nonexempt workers:
- Nonexempt employees are often blue-collar, hourly-rate employees that the employer must pay 1.5 times their hourly rate for overtime.
- Exempt employees must earn at least $684 per week or $35,568 per year. Nonexempt employees earn less than this amount; however, this is not always the case.
The rights of nonexempt employees are detailed in the FLSA.
Types of exempt employees
There are also different types of exempt employees, including:
Employees with executive exemption must meet the following criteria:
- Supervise two or more full-time employees or four part-time employees regularly.
- Be in charge of at least a portion of the business.
- Play an essential role in the work status of other employees, such as hiring and delegating duties.
To be eligible for the administrative exemption, employees must meet the following requirements:
- Perform office or non-manual labor directly relevant to the organization’s and its clients’ business operations or management.
- Use independent judgment and discretion while making critical business decisions without reporting to anyone.
Employees must meet the following requirements to have a professional exemption status:
- Perform job duties that require specialized education and exercising discretion and judgment.
- Have a college degree or higher educational qualifications in their particular field.
- Hold a creative professional exemption that applies to employees who work in a creative or artistic field, and use their originality, talent, imagination, and inventiveness to perform job duties.
Highly compensated employees
- This applies to employees with office or non-manual job responsibilities who earn the FLSA’s highly compensated employee minimum wage.
- The personnel must perform at least one exempt administrative, professional, or executive duty.
Employees in this category must meet the exemption conditions and work in a computer-related function.
Outside sales exemption
Employees who are exempt based on outside sales must meet the following requirements:
- Perform a primary task such as selling or securing contracts or orders.
- Do work outside of their employer’s business premises.
Does The FLSA Apply to Your Employees?
Who is covered by the FLSA? Nearly everyone.
Employees are protected if they work for a company with at least two employees, and has a “volume of sales or business done for at least $500,000” each year, or is a hospital, nursing home, school, or preschool, or government organization.
If this doesn’t apply, employees are nonetheless protected “if they work regularly in interstate commerce.” So, if a company interacts with people in other states, whether they call them, mail them products, or work in a building where items will be transported to them, they’re covered.
Domestic service workers, such as housekeepers or nannies, are frequently covered as well.
Exclusions from FLSA protection
According to the FLSA overtime laws, certain jobs may be entirely excluded from coverage. There are two kinds of complete exclusion. The statute explicitly forbids some jobs.
For example, the FLSA overtime laws do not cover many agricultural laborers or employees of movie theaters. Another form of exclusion are the jobs controlled by different federal labor legislation.
As a general rule, the FLSA doesn’t apply if another federal labor statute regulates the job. For example, the Railway Labor Act protects most railroad workers; and the Motor Carriers Act governs truck drivers.
The FLSA, which was introduced in 1938 and has undergone multiple revisions since then, is one of the most important regulations for employers to know and understand.
It sets out a wide array of rules for dealing with employees’ and employers’ rights and responsibilities. Therefore, it makes it easy to know the limitations and keeps both sides informed not to overstep boundaries.
For more information on FLSA status, visit the FLSA home page.
- The Difference Between Exempt vs. Non-Exempt Employees (indeed.com)
- Handy Reference Guide to the Fair Labor Standards Act | U.S. Department of Labor (dol.gov)
- Nonexempt Employee Definition (investopedia.com)
- Fair Labor Standards Act (FLSA) Coverage (Exempt vs. Non-Exempt — The Online Wages, Hours and Overtime Pay Resource
- faq_flsa.pdf (uua.org)