Exempt vs. Non-Exempt Employees: What's the Difference?

Key takeaways

Classifying employees as exempt or non-exempt determines their eligibility for overtime pay under the Fair Labor Standards Act (FLSA). Here are some important facts to know:

• Exempt employees are salaried and do not receive overtime pay, while non-exempt employees are entitled to overtime for working more than 40 hours a week.

• The FLSA determines classification based on salary level and specific job duties, such as executive, administrative, or professional roles.

• You can improve your ability to lead both types of employees by strengthening your people management skills.

Learn more about how to correctly classify employees and manage their compensation. Afterward, build your expertise in fair pay practices by enrolling in Human Resource Management: HR for People Managers Specialization from the University of Minnesota.

What is an exempt employee?

The term “exempt employee” refers to salaried employees, a designation that prevents them from receiving overtime pay for working more than 40 hours in a workweek. Other FLSA provisions, including minimum wage requirements, don’t apply to these employees. 

Instead of focusing on the number of hours worked, you compensate exempt employees with the expectation they will get the job done without monitoring their hours. 

Advantages of exempt employee classification

Exempt employees offer many advantages to employers, including:

• More experienced and knowledgeable employees

• No need to pay overtime 

• Employees typically have more responsibility, which can promote efficiency

Being an exempt employee offers the individual worker advantages, too. These may include:

• Earning higher, more consistent wages 

• Greater scheduling flexibility and increased access to remote work 

• More opportunities for professional development

Disadvantages of exempt employee classification

For employers, a few disadvantages of exempt employee classification are worth considering. Typically, an exempt employee earns a higher minimum salary. Plus, as they perform greater responsibilities, employers could face more significant financial or legal consequences if something goes wrong.

Having an exempt employee classification can come with drawbacks for the individual worker, as well. For example, you may work outside your traditional schedule without compensation.

Examples of exempt employee positions

Some common positions commonly classified as exempt employees include CEOs, COOs, vice presidents, and directors who manage a business or a department within a business. In addition to these executive employees, you might encounter:

• Administrative employees, such as human resources managers, financial analysts, and payroll administrators

• Professional employees, such as doctors, lawyers, engineers, and creatives

• Computer employees such as systems analysts, programmers, or software engineers

Employers must classify employees as exempt or non-exempt to avoid legal and financial consequences and ensure workplace fairness. The explanation below of exempt versus non-exempt employees—and their respective advantages and disadvantages—can help you avoid running afoul of the Fair Labor Standards Act (FLSA) and compensate your people appropriately.

You’ll primarily see the differences between exempt and nonexempt employees in how you pay them, handle any leave of absence, and manage their overtime. The following comparison chart covers the basics.

While this table focuses on compensation variations, you must also understand how salary and job roles can influence employee classification. Discover more about that in the following sections.

What is a non-exempt employee?

Non-exempt employees typically work hourly and receive overtime pay for hours above the standard 40. The federal minimum wage applies for all hours these employees work, including overtime. 

Advantages of non-exempt employee classification

Employers enjoy several benefits of hiring non-exempt employees, including:

• Ability to choose how to structure non-exempt wages (can be hourly or salaried)

• Employee motivation to work as their income reflects the work they put in

• Greater flexibility in terms of where you can place non-exempt workers and their responsibilities

For employees, a non-exempt classification offers some advantages, too. These include:

• Potential extra income from overtime pay

• Security of strict guidelines ensuring fair pay for hourly workers

• Convenience of clear guidelines regarding working hours, breaks, and overtime pay

Disadvantages of non-exempt employee classification

Employers working with non-exempt employees may have less scheduling flexibility due to working hours and overtime guidelines. Additionally, paying overtime can increase costs.

The rules guiding non-exempt status can also mean less flexibility in the employee's schedules and working hours. An hourly employee may have fewer opportunities for professional development or advancement in their position. Non-exempt employees can also suffer wage inconsistency when employers reduce their hours.

Examples of positions held by non-exempt employees

Employees in this classification can fill many roles in businesses. Electricians, carpenters, cashiers, and secretaries typically count as non-exempt employees. Other common examples include interns, contractors, and freelancers.

Learn more about employee compensation and management

Interested in a career in human resources? Subscribe to our LinkedIn newsletter, Career Chat, to stay up to date on industry trends and insights. Or, explore these other helpful resources:

• Take the quiz: Which Management Course Should You Take? Find Out in 1 Minute

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• Watch on YouTube: How Generative AI is Transforming Business Operations | Real Examples

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