What Does Exempt Employee Mean: Implications, How It Works

exempt employee mean
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There are basically two types of employees, the exempt employee, and the non-exempt employee. Understanding what each individual type means will help you make better decisions as an employer or an employee.

In this article, we’ll talk about what an exempt employee means, its implications, and how it works. See the table of contents below.

Who is an Exempt Employee?

According to monster.com, an exempt employee is someone excluded from minimum wage, overtime regulations, and other rights and protections afforded non-exempt workers. Exempt employees are paid salary and not hourly wage for a position or job done.

Investopedia further defines the term ‘exempt employee’ as a category of employees set out in the Fair Labor Standard Act (FLSA). Keenly put, exempt employees do not receive overtime pay, nor do they qualify for the minimum wage. When an employee is exempt, it primarily means that they are exempt from receiving overtime pay. 

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FLSA classifies the following category of workers as exempt employees

  • Professional
  • Administrative
  • Executive
  • Outside sales
  • Computer-related

What qualifies as an Exempt Employee? How it works

To know if you qualify as an exempt employee, there are certain criteria to be checked.

The first criterion that should be considered to qualify as an exempt employee is salary paymentExempt employees must be salaried workers as opposed to hourly wage workers.

The second criterion is for the employee to earn at least the FSLA recommended threshold. Employees must earn a salary of at least $35,568 per year, which is $684 per week, to be considered exempt.

Lastly, the employees must have high-level responsibilities. These job duties have specific responsibilities that qualify them for exemption. Let’s take a look at the three main categories of exempt employee job duties:

1. Executive exemption

To fall under executive exemption, an employee must be able to meet the following requirements:

  • Manage your small business
  • Direct two or more full-time employees
  • Have the ability to hire, fire, promote, or change the status of other employees

2. Administrative exemption

To fall under the administrative exemption, an employee must meet the following requirements:

  • Perform office or non-manual work related to the general business operations or management
  • Use their discretion when performing tasks without reporting to someone else

3. Professional exemption

To fall under the professional exemption, or “learned professional,” an employee must meet the following requirements:

  • Job duties require advanced knowledge in the field of science or learning (e.g., law, medicine, engineering, etc.)
  • Be certified in their particular field (e.g., college degree)

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Implications of being an exempt employee? Pros and Cons of the Exempt Employee Status

While exempt employees tend to make more money per year, there are implications that sets them apart from their counterparts. Lets take a look at the pros and cons of exempt employee status.

Pros

  • Minimum Salary Threshold- exempt employees are compensated for the projects they complete, not the time it takes to complete them. For this reason, employees in an exempt position are compensated with a salary, not hourly wages.
  • Flexible Work Environment- Because exempt employees are compensated for the jobs they do and not the time it takes them, they often have a more flexible work environment than non-exempt employees. Employers are often more interested that these workers complete their jobs than the time it takes them to do those jobs, so employers may be less concerned if workers take longer lunch breaks, come in late or work in areas other than the office.

Cons

  • Overtime Pay- Because Exempt Employees are not paid hourly, they do not qualify for overtime pay. This meaning, they get paid the same rate regardless of the extra time spent in the office.
  • Compensation for Hours Worked- the same way that they do not qualify for overtime, exempt employees might find that at the end of the month, the salary earned and the time spent at work probably won’t be as juicy as their non-exempt counterparts.
  • Worker’s Rights and Benefits- The most common and powerful workplace protections apply to both exempt and non-exempt employees equally. Labor laws protect both. The only major difference in benefits or work is overtime pay, which only applies to non-exempt employees. Some benefits, such as health care or retirement packages, are given to full-time, hourly employees working 40 hours per week and non-exempt employees. From a perks standpoint, a non-exempt employee is usually considered a full-time employee, no matter how many hours they clock in at work.

Exempt Employee versus Non-Exempt Employee

There are two basic types of employees in the workplace—“exempt employees” and “non-exempt employees.”

The most significant difference between the two is the pay for overtime work. The term “exempt” means exempt from being paid overtime. Exempt employees are typically expected to work the number of hours that are necessary to complete the tasks associated with their job, whether it takes them 30 hours or 50. Their income does not change based on the number of hours that they work. In other words, they aren’t paid for their time, necessarily, they’re paid for getting the job done. Nonexempt employees, conversely, are paid on an hourly basis and receive time-and-a-half for working more than 40 hours per week.

Another difference between exempt and nonexempt employees has to do with the type of work the employee performs. Exempt employees regularly perform higher-level duties with respect to the overall operations of the company, regardless of what their job title may be.

Nonexempt employees can earn any amount per week, while exempt employees must earn a minimum of $455 per week to pass for the exception.

Final Words

Although being an exempt employee doesn’t include overtime, it offers more security than a non-exempt position. An exempt employee is expected to put in the work necessary to get the job done. He usually has more responsibilities than an hourly employee and often receives higher earnings.

To obtain this exemption, the employee must meet the FLSA wage and/or job duties test. This includes most professional, administrative, and executive employees who are paid on a salary basis.

Lastly, exempt employees generally have more potential for job growth than hourly workers and have a steady stream of income that they can look forward to each payday.

References

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