When you apply for a job, the most common terms that you come across are “exempt and nonexempt employees. These are two types of employees in the workplace.
Many people don’t understand the difference between exempt and nonexempt employees, especially if they are freshers. If you are also one of them and don’t understand the difference between these two terms and landed on our website to learn about it then keep reading the article, I will share will you all about exempt and nonexempt employees.
Exempt employees and nonexempt employees both have the same kind of work and duties to perform. The only thing that differentiates an exempt employee from a nonexempt employee is the pay for overwork. Let us learn about both exempt and nonexempt employees one by one.
The googled meaning of the word “exempt” is “free from liabilities”. That means the employees that are titled with “exempt” titles are not entitled to be paid for overtime work. Fair Labour Standards Act (FLSA) demands companies classify their employees either as exempt employees or as nonexempt employees. The exempt employees are not covered by the rules and regulations set by FLSA.
As per the rules of FLSA, an employee should be paid at least 40 hours wage per week and additional pay for overtime work that employees have done (Not in for exempt employees). AN exempt employee will not be paid extra for the extra number of hours he worked. However, this rule varies from employer to employer. Some employers provide employee benefits packages to employees in return for overtime work done by them.
The employees who perform work like administrative, executive, supervisory, and other professional practice should be paid in the form of salaries and not on an hourly basis.
Types of exempt employees
The following professionals are considered exempt employees according to the Fair Labour Standard Act (FLSA). However, the list includes the broad professions’ names. It covers all types of jobs under these professions.
- Outside sales
As per the Fair Labour Standards Act (FLSA) laws, a nonexempt employee s entitled to be paid for the additional number of hours he works. However, the rules and guidelines for overtime pay vary from state to state. Therefore, you must learn about your state overtime pay laws before hiring a nonexempt employee.
A nonexempt employee is required to be paid time and a half the regular rate of pay of the employee when they work more than 40 hours in a week. As per the rules, nonexempt employees are required to be paid at least $7.25 in 2020 the work that they do regularly and time and a half for all the number of extra hours they work, in addition to, 40 hours work per week.
The main difference between exempt and nonexempt employees is not based on their job title but is based on the kind of task is performed at work.
Guidelines for exemption from overtime pay requirements
There are some changes in the list of exempt employees that will be effective in all fields from January 1, 2020. That means all employees working in administrative, executive, professional, salespeople, and STEM (Science, Technology, Engineering, and Maths) will be classified as exempt employees. That means these professionals will be ineligible for getting paid for overtime work that they do if they meet the following conditions.
- The employee is being paid in the form of a salary for any week they work.
- The employee is paid in the form of a salary and not paid on an hourly basis.
- The minimum income of an employee should be at least $684 per week or more than $35,000 annually.
In addition to the above conditions, the employee is required to perform well at specific employment tests about their job duties and responsibilities to get qualified from an exception from overtime.
The following are the condition that an employee must meet to be an exempt employee
1. Administrative exemption
For administrative exemption, the employee must perform work which is directly related to the management department of a company or for any of the client of the company.
2. Executive exemption
For executive exemption, an employee must be in a position to either manage an organization or to manage a department of the organization. They must have the authority to recruit people or to fire people in the organization or at least have a role to play, such as providing suggestions and analyzing the skills of the candidates to be hired. In addition to this, they must at least manage two employees in the organization.
3. A professional exemption
For professional exemption, the employees must perform duties that are related to the professional fields like science, technology, computers, etc. They must have acquired their skills through specialized, prolonged, and intellectual studies.
For example, when a bank hires a cybersecurity expert to take care of the security of the bank’s network or to find out the loopholes in the security arrangements of the bank’s system. The other examples of highly specialized skills are teaching, engineering, computer analytics, etc.
4. Highly compensated employees
An employee who is highly compensated at least paid $107,432 or more annually. They should not perform any manual work and should perform work associated with the official work. Highly compensated employees should complete one of the work duties of an administrative, executive, or professional employees.
5. Outside sales exemption
The employees that fall under outside sales exemption are the employees that are hired by an organization to sell their products and services outside the office or to obtain orders and contracts for the organization. The outside sales exemption employees work away from the employer.
6. Computer exemption
The employees that are hired for the work related to or for the jobs that are performed on computers such as software analyst, computer programmer, system engineer, network engineer, etc. All such employees who perform work on a computer are considered for computer exemption.
The followings are the exemption to overtime work requirements
The nonexempt employees are those who work in fields other than the administrative, professional, or executive levels.
- The employees that work on motor carriers such as taxi drivers, air carriers, seamen on American vessels, and the local delivery employees who are paid according to the decided rates of the trip for their work are considered nonexempt employees are entitled to overtime compensation.
- Commission employees in retail and service establishments, who are hired by non-manufacturing organizations to sell their products to the ultimate consumers of the product are considered nonexempt employees. For example, part clerks, mechanics servicing autos, trailer, auto, truck, boat or aircraft sales workers, etc.
- Employees who work as house helpers and live in the residence of the employer are also considered nonexempt employees.
- News editors, announcers, chief engineers of non-metropolitan broadcasting stations.
- Employees who work as farm helpers.
- Employees who work in motion picture theatres.
The following is the list of additional changes that took place for considering employees as exempt employees
- The annual salary requirements for a highly compensated employee has increased from $100,000 to $107432, effective from January 1, 2020.
- Annual bonuses and incentives paid to employees can be considered as 10% of the standard salary level of an employee to be considered as an exempt employee, effective from January 1, 2020.
Tax liabilities difference of exempt versus nonexempt employees
Despite the several differences between getting paid of the exempt and nonexempt employees. There is no difference in the way exempt and nonexempt employees are taxed. Everyone is required to pay the tax based on the total income earned by them.
Workers’ rights and benefit implications for exempt and nonexempt employees:
The federal rules are more favorable for nonexempt employees as compared to the exempt employees. Even though both exempt and nonexempt employees are given the same treatment by several employers. The first pieces of federal legislation such as the right to equal job opportunities, the right to a safe and healthy work environment, federal child labor law, and rights provided under the family and medical leave act apply to both exempt and nonexempt employees similarly.
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