This is a fairly consistent question from employers today so I decided to rerun this post. There is an update at the end, however.
The Fair Labor Standards Act tells us we have two types of employees, non-exempt and exempt. Unfortunately these terms are not very explanatory and people often get them confused. Let me see if I can explain.
Exempt from what?
Basically according to the FLSA the term “exempt” me “you don’t have to pay’ and what you don’t have to pay is overtime. Overtime is a payment of wages that compensate people for working more than 40 hours in a workweek. When you say someone is “non-exempt” that means you MUST pay them overtime whenever they work more than that 40 hours. In some states overtime has to be paid for work of more than 8 hours in a day. So non-exempt means “not exempt from being paid overtime.”
Conversely “exempt” means that particular employee is exempt from being paid overtime, in other words you do NOT have to pay them anymore even when they work more than 40 hours in a week. But of course it is not that simple. To be considered an exempt employee they also have to meet the following requirements:
- They have to be paid a minimum salary of $455 per week (though this is about to change)
- They must be paid that salary for ANY hours worked in that week and this is regardless of the quantity and quality of the work performed
- They cannot have any deductions taken out with exceptions (See The Seven Reasons You Can Dock an Exempt Employee)
- They have to meet certain requirements in the job as required for each category of exemption. (See FLSA Exemptions are about DUTIES not Titles)
Basically the trade-off for employees and employers is that as an employee you are getting a guaranteed amount of pay on a regular basis and as an employer I can require an employee to work any amount of time I need to have worked.
That trade-off often raises questions from both sides of the equation. Employees generally ask “Can they make me work more than 40 hours without paying me for it?” The answer is yes, regardless of how your workweek is defined. The employer is guaranteeing your salary will not drop below a minimum and that is the trade-off.
Can we pay exempt employees overtime?
A frequent question I get from employers is “We have been working people hard and we want to pay them extra. Can we or does that ruin their exemption?” The answer to that is “yes you can” and “no it doesn’t!” You not only can pay exempt employees more you probably should. You can do it by paying a bonus, commission or even overtime, be it straight time or even time and half. As the law says:
“the exemption is not lost if an exempt employee who is guaranteed at least $455 each week paid on a salary basis also receives additional compensation based on hours worked for work beyond the normal workweek. Such additional compensation may be paid on any basis (e.g., flat sum, bonus payment, straight-time hourly amount, time and one-half or any other basis), and may include paid time off.” 29 CFR 541.604
What makes an exempt employee non-exempt from a pay standpoint is reducing the salary amount below $455 through improper deductions thus removing the guarantee.
This is the way the FLSA exists today as of March 11, 2015. The USDOL is working on a revision of the law that will alter salary levels and the duties requirements, so stay tuned to be informed of those changes. You can read more at The USDOL is getting ready to disrupt your workplace!
Update as of August 2019:
The USDOL is still in the process of updating the definition of what it means to be exempt by raising the salary level to $679 per week (equivalent to $35,308 per year). Above this salary level, eligibility for overtime varies based on job duties. This proposed level is due to take effect in January 2020.