Exempt Employees

Updated on April 11, 2024
Article byNanditha Saravanakumar
Edited byNanditha Saravanakumar
Reviewed byDheeraj Vaidya, CFA, FRM

What Are Exempt Employees?

Exempt employees in an organization do not qualify for overtime pay or minimum wages according to the law. This is because they do not receive hourly wages but fixed salaries. Hence, they have higher job security than non-exempt workers and are usually engaged in executive or professional work.

Exempt Employees

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The Fair Labor Standards Act (FLSA) lays down the rules for exempt employees. The act specifies a minimum of $684 weekly or $35,568 annually for exempt workers. This naturally becomes more than the minimum wage rate. Further, employees are also bound by their state laws.

Key Takeaways

  • Exempt employees definition refers to the classification of employees not receiving overtime pay and not subject to the federal minimum wages.
  • They are usually at an advantage as compared to non-exempt workers due to the job security they receive.
  • The minimum salary for exempt employees in 2023 is $684 weekly or $35,568 annually. Thus, employees receiving lesser than this are non-exempt.
  • Non-exempt employees are paid wages based on the exact amount of work they do in a specific number of hours. But they do not enjoy other benefits that come with a job – health care, bonus, etc.

Exempt Employees Explained

Exempt employees are those in a company in managerial, executive, and other professional positions. For example, managers, clerks, front-office employees, IT staff, sales executives, etc., come under this. But factory workers hired during peak season are not included in this. They are non-exempt and, thus, are paid according to their work.

For example, Max is a non-exempt worker. He is hired during the Christmas season by the production department of Company X. Max is paid $20 per hour. He usually works for Company X in December of every year for an average of 50 hours weekly. Lana works as an accountant in the same company and is given a salary of $3000 monthly for a 40-hour week. But sometimes she works less and sometimes more. 

The rules for exempt employees, who qualify as exempt workers, the minimum salary for such staff, and other regulations are laid down by the Fair Labor Standards Act (FLSA). Apart from this, the laws for exempt workers in each state differ, and the companies in these states are also subject to these laws.

Nevertheless, the laws do not protect exempt workers, as they already enjoy job security. But many laws protect non-exempt employees, such as the Minimum Wage Fairness Act, which mandates a minimum of $7.25 per hour. The highest minimum wage is in California at $15 per hour

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Examples

Consider the following examples of FLSA-exempt employees.

Example #1

Hugh works as a project manager in a construction company. He works forty hours a week and earns $1000 per week. However, depending on the nature of his job, sometimes he works less than forty hours a week, or sometimes he works more. But his pay remains the same, and he is not paid extra for any overtime work. Thus, he is an exempt employee.

Example #2

The overtime pay exemption for salaried employees has invited challenges from U.S. Supreme Court Justice Brett Kavanaugh. The case involved an oil rig supervisor, a daily-wage employee earning $200,000 annually. The condition for an exempt employee is to receive more than $35,568 annually. Therefore, this employee met the conditions of a highly compensated employee. This inconsistency of the FLSA received criticism from the court. 

Benefits

Here are the reasons why exempt employment might be advantageous:

  • The most obvious benefit of being an exempt worker is higher job security. In addition, the fact that the federal minimum wage doesn’t apply to an organization means that an employee enjoys more than the minimum wage.
  • Since the hourly wage rate doesn’t apply, the working hours are not strict. Thus, the employees can work less for the same pay. However, this also means that the employee will have to work more without overtime pay.
  • FLSA-exempt employees are also advantaged due to other benefits like bonuses, health care, etc.

Exempt vs Non-Exempt Employees

Let’s differentiate between exempt and non-exempt workers.

Exempt EmployeesNon-exempt Employees
Do not qualify for overtime pay and minimum wages.Have to be paid according to the federal minimum wage rate.
Receive a fixed salary, usually more than non-exempt workers’ payment.Receive hourly wages at or a little more than minimum wage.
Paid more for less work or paid less for more work.Paid according to work done.
Employees receive other benefits like health care, bonus, etc.Employees do not receive any other benefits.
Less government protection due to job security.More government protection due to lack of job security.
Managerial, executive, and professional work come under this.Unskilled labor is usually considered non-exempt.
Often full-time employees.Mostly part-time employees.

Frequently Asked Questions (FAQs)

Are exempt employees salaried?

Yes. Exempt workers receive a fixed salary, which does not vary according to the number of hours worked and the hourly wage rate. 

Do exempt employees get overtime?

No. Often, such employees have to work overtime but do not receive any overtime pay. Whereas non-exempt workers, on the other hand, receive wages for the exact amount of work undertaken. However, there are times when exempt workers do less work and get paid the same amount anyway. This should compensate for the lack of overtime pay.

Can exempt employees unionize?

Exempt employees, like others, are certainly eligible to form and join labor unions.

Can exempt employees be paid hourly?

No. Exempt employees are usually not paid hourly. Instead, they receive salaries weekly or monthly, irrespective of the amount of work or the number of hours they work.

This has been a guide to what are Exempt Employees. Here, we compare them with non-exempt employees, explain them with examples, and benefits. You can learn more about accounting from the following articles –

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