Hourly, Salary, Exempt, Non-Exempt – what does it all mean?
It’s an exciting day – after a long search, your company has made a hire for a new position! Everything is ready to welcome the new team member to the office and process their onboarding. While reviewing the job description and duties with the new hire, they ask a question that is often fraught with confusion and misunderstanding:
“So, am I an hourly employee or a salaried employee?”
What is the Difference Between an Hourly and Salary Employee?
So many people, from entry employees to executives, ask the same question. The terms “hourly” and “salary” describe how much and how often one receives pay. For example, the three employees below would all make the same amount of money:
- A receptionist who receives $15/hour
- A grocery store manager who receives $600/week for a 40-hour workweek
- A paralegal who receives $1,200/every two weeks for a 40-hour workweek
“Hold up there,” you might say. “Someone who is salary can work as many hours as we need them to, not just 40 hours per week.”
Well, that is where things get complicated. “Salary” and “exempt” are often interchangeable in the workplace, but that is not accurate.
The Fair Labor Standards Act (FLSA)
Most employers receive coverage from the Fair Labor Standards Act of 1938 (FLSA). The FLSA provides many standards for employers, such as the minimum wage, overtime requirements, and child labor.
Let’s explore the overtime guidelines and the exemptions from those standards.
What is an Exempt vs. Non-Exempt Employee?
The terms “exempt” and “non-exempt” designate if employees receive coverage by the FLSA overtime requirements. Under the FLSA, employees must receive overtime pay for all hours worked over 40 hours per workweek. This payment must be at a rate of at least 1.5 times their “regular rate” of time. You may know this as “time and a half.” These employees are “non-exempt” employees.
The FLSA has an “exemption” for certain types of employees, however. This exemption means some employees do not receive this special rate of pay for more than 40 hours. These employees are “exempt employees,” – meaning they are exempt from the FLSA overtime requirement.
For employees to be “exempt,” they have to meet specific guidelines provided by the Department of Labor (DOL). These guidelines have changed several times over the years. However, there have always been tests to determine if a worker qualifies as “exempt.”
Determining Exempt Status – The “Tests”
Many people may assume that a job title, such as manager or director, determines if a position is exempt. However, this is not the case; the DOL has created exemption tests to determine if a position is exempt. There are six classes of Exempt workers currently identified by the DOL’s Wage and Hour Division: Executive, Administrative, Professional(Learned or Creative), Computer Employee, Outside Sales, and Highly Compensated Employees.
Each class of exempt workers has a multi-part test. An employee or position must meet all parts of the test to be exempt. The standards for the tests generally consist of:
- An annual salary of at least $35,568, or $684 per week.
- Be paid on a salary basis, such as weekly, bi-weekly, or semi-monthly.
- Perform exempt job duties for the corresponding classification.
The DOL has fact sheets available with general information about the FLSA, as well as detailed fact sheets for each exempt classification.
So, an exempt employee should always be a “salaried” employee, but a “salaried” employee is not always exempt and could be eligible for overtime pay.
Employers can, and should, prepare for this question by:
- Have well-crafted job descriptions;
- Document positions that are Exempt by reviewing and attaching the corresponding Exempt Classification Fact Sheet or an FLSA Exemption Checklist
- Review and revise (as needed) Job descriptions and related duties.
A misclassified employee or position can be a costly mistake, including fines, paying back wages (including overtime), and other penalties – Both at the federal and state level, as some states have more stringent wage and hour requirements.
At My HR Professionals, we can provide support with developing appropriate job descriptions and documentation of FLSA Exemptions.
Written by: Jessica Sinclair, My HR Professionals, Compliance Officer, PHR