The human resource industry divides employees into two broad categories: exempt and non-exempt. Compensation structure is the key difference between exempt and non-exempt employees. Both categories of employees have a right to earn the minimum wage rate. However, non-exempt employees generally qualify for overtime pay, and they are paid an hourly rate. While exempt employees usually earn the same pay, irrespective of the actual number of hours they work.
What is a Non-Exempt Employee?
A non-exempt employee is also known as a contract employee or an hourly employee and works on an hourly basis and gets paid hourly. Non-exempt employees are eligible for the Minimum Wage and Overtime provisions of the Fair Labor Standards Act (FLSA). Since they are paid hourly, they are setup with an In-Out Timesheet since the In and Out time is critical for both employees and employers.
Non-exempt employees are protected by the state and/or federal wage and hour law. Non-exempt employees have to be paid no less than the minimum wage for all hours worked. And they qualify for overtime if they work more than 40 hours in one workweek. However, the FLSA doesn’t require overtime to be paid to exempt employees or for hours worked in excess of eight hours a day or on holidays or weekends.
While there are some exceptions, the FLSA generally requires that overtime should be paid at a rate 1.5 times the regular pay rate of the non-exempt employee. This is for each hour worked beyond the standard 40 hours in a work week. For instance, non-exempt employees who work 50 hours a week and earn $10 hourly would receive $10 per hour for the first 40 hours. They would then earn $15 per hour for the last 10.
Employees usually classified as non-exempt include, but are not limited to construction, blue-collar, clerical, and semi-skilled workers. as well as laborers and technicians. First responders, paramedics, firefighters, and police officers are always regarded as non-exempt even though they meet other exempt criteria.
States usually maintain standards for exempt and non-exempt employees above and beyond federal regulations. States can set a state-specific minimum wage for both categories of employees. Many states require employers to pay their non-exempt employees overtime pay in some instances. For instance, California employers are required to pay non-exempt employees who work for over 8 hours in a particular work day.
The Importance of Proper Employee Classification
Classifying employees as either non-exempt or exempt is neither easy nor exact. However, it is of utmost importance to classify employees properly and ensure compliance with the FLSA rules. The most significant class action lawsuits have been a result of employers misclassifying non-exempt employees as though they were exempt from overtime pay. Employee misclassification usually has serious financial implications such as penalties and fines assessed by state, federal, or even local agencies.
The government has been on a heightened enforcement mission of overtime laws in recent years. The Department of Labor has actually slammed a California company with a $580 million verdict. The stakes are so high since the employer can be liable for taxes, back wages, attorney fees, interest, penalties. Employers are encouraged to be very cautious when classifying employees.