August 5, 2024 • 9 mins
Non-exempt, non-exempt salaried and exempt employee classifications are some of the most misunderstood terms when it comes to the federal Fair Labor Standards Act (FLSA). Unfortunately, misunderstanding these terms and the rules that govern them can result in costly penalties. We’ll go over what employers need to know about these classifications and more. Listen in as we cover:
- [0:52] What are non-exempt employees?
- [1:42] What are non-exempt salaried employees?
- [2:25] Are “salaried” and “exempt” the same?
- [2:57] How to calculate overtime for non-exempt salaried employees
- [4:04] Keeping accurate time records for non-exempt employees
- [5:24] Pay requirements for unauthorized overtime
- [5:56] What are exempt employees?
This content is based on generally accepted HR practices, is advisory in nature, and does not constitute legal advice or other professional services. ADP does not warrant or guarantee the accuracy, reliability, and completeness of the content. Employers are encouraged to consult with legal counsel for advice regarding their organization's compliance with applicable laws. This content is current as of the published date.
Copyright © 2024 ADP, Inc. All Rights Reserved. The ADP logo, ADP, RUN Powered by ADP, and HR{preneur} are registered trademarks of ADP, Inc. and its affiliates. All other marks are the property of their respective owners.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Jim (00:00):
Non exempt, non exempt salaried, and exempt employee classifications are
some of the most misunderstood termswhen it comes to the Federal Fair Labor
Standards Act, also known as the FLSA.
Unfortunately, misunderstandingthese terms and the rules that govern
them can result in costly penalties.
In this podcast, we'll cover key detailsabout these classifications and discuss
(00:20):
what employers need to know about them.
Welcome to HRpreneur.
I'm Jim Duffy. From MainStreet to your street
the HRpreneur podcast is centeredaround helping small businesses like
yours gain the knowledge you needfrom HR, payroll and hiring to time,
taxes, benefits, and insurance.
Today we'll talk with our guest MerylGutterman about classifying an employee as
(00:40):
non exempt, non exempt salaried or exempt.
Meryl is senior counselwith ADP's HCM group.
Hey, Meryl, it's great once againto have you back on the show.
Meryl (00:50):
Thanks, Jim.
It's great to be here today.
Jim (00:52):
First off, what should employers understand about non exempt employees?
Meryl (00:57):
So, under the Federal Fair Labor Standards Act, or the FLSA, an
employee who is considered non exemptis entitled to at least the minimum wage
for each hour worked and overtime payat one and a half times the employee's
regular rate of pay whenever they workmore than 40 hours in a work week.
Non exempt means that the employee isnot exempt from the protections of the
(01:21):
FLSA, such as overtime and minimum wage.
Also, keep in mind that thereare some states that may require
overtime in additional circumstances.
Employees are considered non exempt unlessthey meet the FLSA tests for exemption.
Jim (01:36):
Oh, great.
Thank you, uh, for that, Meryl.
We're going to get to thoseexemption tests in a minute.
Uh, but let's go back here.
What, then, is a nonexempt salaried employee?
Meryl (01:46):
So, most non exempt employees are paid on an hourly basis.
However, there are employers whochoose to pay non exempt employees on
a salary basis, but to do so, they haveto make sure that the employee's pay
for each hour of work meets or exceedsthe minimum wage, and that employee
is paid overtime whenever they workmore than 40 hours in a work week.
(02:09):
So a non exempt salaried employee isone who is entitled to the minimum
wage and overtime, but is paid asalary instead of an hourly wage,
and they, too, are subject to thesame recordkeeping requirements
as other non exempt employees.
Jim (02:25):
Meryl, we sometimes see employers use salaried and exempt interchangeably
for employees who are classified asexempt from the minimum wage and overtime.
Should these terms beused interchangeably?
Meryl (02:38):
No, no, they shouldn't.
While employers sometimes use the termssalaried and exempt interchangeably,
not all employees who are paid asalary are exempt from overtime.
So we should use the term exemptwhen we're talking about an employee
who is not entitled to overtime,meaning they are exempt from
the FLSA overtime requirements.
Jim (02:57):
As you just made clear, non exempt salaried employees are entitled to
overtime whenever they work more than40 hours in a work week under the
FLSA, and overtime must be paid at
1.5 times the employee'sregular rate of pay.
How do you calculate the regular rate ofpay for a non exempt salaried employee?
Meryl (03:16):
Well, under the FLSA, calculating a non exempt salaried employee's regular
rate of pay for overtime purposes dependson the number of hours that the employer
and the employee understand that thesalary is intended to cover, provided
the employee is reasonably expectedto work for that number of hours.
So, for example, if the employer and theemployee understand the salary to cover
(03:39):
45 hours, Then the employer may calculatethe regular rate of pay by dividing
the weekly salary, in addition to anyother form of compensation, by 45 hours.
Keep in mind, though, that somestates have different rules.
So in California, for example, employersare limited to dividing the weekly
salary by a maximum of 40 hours whencalculating the regular rate of pay
(04:01):
for non exempt salaried employees.
Jim (04:04):
So Meryl, when it comes to non exempt and non exempt salaried employees, is
there anything else you'd like to cover? 70,
Meryl (04:10):
Yes, there is.
So with non exempt and non exemptsalaried employees, keeping an accurate
record of hours worked is critical tohelp employers comply with the law.
And keep in mind that under the FLSA,hours worked includes not only productive
time, which is the time you actuallyspend working, but also certain non
productive time, such as rest breaks,travel time, and training time.
(04:33):
And all of this must be included whendetermining whether you have met your
minimum wage and overtime obligations.
Jim (04:39):
So Meryl, in addition to keeping an accurate record of hours, what
other types of records must employerskeep for non exempt employees?
Meryl (04:47):
There are a number of records.
So employers have to maintain theemployee's name, their home address,
occupation, sex, and birth dateif they're under 19 years of age.
They have to keep the hour andday when the work week begins, the
total hours worked each work dayand each work week, the total daily
or weekly straight time earnings.
Um, the regular hourly pay rate forany week when overtime is worked, the
(05:10):
total overtime pay for the work week.
They also have to maintain deductionsfrom or additions to wages and the total
wages that are paid each pay period,in addition to the date of payment
and the pay period that's covered.
Jim (05:24):
So Meryl, what if the regular time or overtime that the non exempt employee
worked wasn't authorized in advance?
Meryl (05:31):
Under the FLSA, if a non exempt employee has worked overtime, they have
to be paid an overtime premium regardlessof whether the overtime was preauthorized.
So if you have a policy that no overtimework is permitted unless it's authorized
in advance, that still doesn't relieveyou as the employer of this requirement.
And also, employers can'twithhold pay for time worked.
(05:52):
If the employee clocks in beforetheir scheduled start time either.
Jim (05:56):
All right, Meryl, let's switch gears.
Let's turn to exempt employees.
What is an exempt employeeand what sets them apart?
Meryl (06:03):
So as I briefly mentioned earlier, under federal law, an exempt employee
is someone who is not subject to certainrequirements under the FLSA, including
federal overtime and minimum wage.
These employees typically work inthe administrative, professional, and
executive roles, and to be consideredexempt, they have to satisfy three tests.
So the first is the.
Salary level test.
(06:24):
As of July 1, 2024, employers mustpay employees a salary of at least
844 per week to meet the salarylevel test for these exemptions and
then effective January 1st, 2025.
The minimum salary required forthese exemptions is scheduled
to increase to 1,128 per week.
(06:46):
And then the second testis a salary basis test.
And this means that with very limitedexceptions, the employer must also pay
employees their full salary in any weekthey perform work, regardless of the
quality or the quantity of the work.
And then the third test, which isjust as important, is the duties test.
And under this test, theemployee's primary work duties
(07:07):
have to meet certain criteria.
So unless all of these tests are met,the employee must be classified as non
exempt, and they would then be entitledto at least the minimum wage for each
hour worked and overtime pay if theyworked more than 40 hours in a work week.
Jim (07:23):
So Meryl, a moment ago you mentioned that some states have
their own rules for exemption.
How do these impact employers?
Meryl (07:30):
Yes, a number of states do have their own salary and duties tests for
determining whether an employee isexempt from overtime under state rules.
And generally, if the state law is moreprotective of the employee, and that means
the law requires a higher salary amount orhas a duties test that's harder to meet,
then the state law should be followed.
(07:51):
Complicating matters is thatsome states have exemptions from
overtime, but not from minimum wage. 135,
So in those states, an exemptemployee's salary generally must also
be sufficient to satisfy the minimumwage for all hours worked in a work
week to maintain that exemption.
Jim (08:07):
Meryl, it's always fascinating to hear and have you
share your information with us.
It's useful and helpful.
And this actually brings usto the end of our episode.
Thanks once again.
I enjoyed having you here on the show.
So let's, um, let's recapsome notes I've taken.
And please keep me honest.
Um, I'll start with non exemptemployees are entitled to at least
the minimum wage for each hour workedand overtime whenever they work
(08:30):
more than 40 hours in a work week.
Non exempt employees are typicallypaid on an hourly basis, but may be
paid as a salary instead, provided theemployee's pay for each hour of work
meets or exceeds the minimum wage and theemployee is paid overtime whenever they
work more than 40 hours in a work week.
Third point here is, for overtimepurposes, the regular rate of pay
(08:52):
of a non exempt salaried employeedepends on the number of hours the
employer and the employee understandthat the salary is intended to cover,
provided the employee is reasonablyexpected to work that number of hours.
State rules may differ.
Another point here was accuratelyrecording hours worked is key to
complying with minimum wage and overtimerequirements for non exempt employees.
(09:13):
Another point here I took was, uh,under the FLSA, if a non exempt employee
has worked overtime, they must be paidan overtime premium, regardless of
whether the overtime was preauthorized.
And my last summary here is statelaws should also be considered.
Meryl (09:28):
Well said and well summarized.
Okay.
Thank you, Meryl.
Jim (09:31):
Presented by ADP, HRpreneur focuses on the entrepreneurs and business
drivers who are shaping the growthof their companies and positively
impacting the lives of their employees.
With each episode, we bring the expertsto you, we answer your questions, and
help you think beyond today so youcan discover more success tomorrow.
Thanks also to our listeners forjoining us for today's episode.
(09:52):
Be well, and we hopeyou'll join us again soon.
Non exempt, non exempt salaried, and exempt employee classifications are
some of the most misunderstood termswhen it comes to the Federal Fair Labor
Standards Act, also known as the FLSA.
Unfortunately, misunderstandingthese terms and the rules that govern
them can result in costly penalties.
In this podcast, we'll cover key detailsabout these classifications and discuss
(00:20):
what employers need to know about them.
Welcome to HRpreneur.
I'm Jim Duffy. From MainStreet to your street
the HRpreneur podcast is centeredaround helping small businesses like
yours gain the knowledge you needfrom HR, payroll and hiring to time,
taxes, benefits, and insurance.
Today we'll talk with our guest MerylGutterman about classifying an employee as
(00:40):
non exempt, non exempt salaried or exempt.
Meryl is senior counselwith ADP's HCM group.
Hey, Meryl, it's great once againto have you back on the show.
Meryl (00:50):
Thanks, Jim.
It's great to be here today.
Jim (00:52):
First off, what should employers understand about non exempt employees?
Meryl (00:57):
So, under the Federal Fair Labor Standards Act, or the FLSA, an
employee who is considered non exemptis entitled to at least the minimum wage
for each hour worked and overtime payat one and a half times the employee's
regular rate of pay whenever they workmore than 40 hours in a work week.
Non exempt means that the employee isnot exempt from the protections of the
(01:21):
FLSA, such as overtime and minimum wage.
Also, keep in mind that thereare some states that may require
overtime in additional circumstances.
Employees are considered non exempt unlessthey meet the FLSA tests for exemption.
Jim (01:36):
Oh, great.
Thank you, uh, for that, Meryl.
We're going to get to thoseexemption tests in a minute.
Uh, but let's go back here.
What, then, is a nonexempt salaried employee?
Meryl (01:46):
So, most non exempt employees are paid on an hourly basis.
However, there are employers whochoose to pay non exempt employees on
a salary basis, but to do so, they haveto make sure that the employee's pay
for each hour of work meets or exceedsthe minimum wage, and that employee
is paid overtime whenever they workmore than 40 hours in a work week.
(02:09):
So a non exempt salaried employee isone who is entitled to the minimum
wage and overtime, but is paid asalary instead of an hourly wage,
and they, too, are subject to thesame recordkeeping requirements
as other non exempt employees.
Jim (02:25):
Meryl, we sometimes see employers use salaried and exempt interchangeably
for employees who are classified asexempt from the minimum wage and overtime.
Should these terms beused interchangeably?
Meryl (02:38):
No, no, they shouldn't.
While employers sometimes use the termssalaried and exempt interchangeably,
not all employees who are paid asalary are exempt from overtime.
So we should use the term exemptwhen we're talking about an employee
who is not entitled to overtime,meaning they are exempt from
the FLSA overtime requirements.
Jim (02:57):
As you just made clear, non exempt salaried employees are entitled to
overtime whenever they work more than40 hours in a work week under the
FLSA, and overtime must be paid at
1.5 times the employee'sregular rate of pay.
How do you calculate the regular rate ofpay for a non exempt salaried employee?
Meryl (03:16):
Well, under the FLSA, calculating a non exempt salaried employee's regular
rate of pay for overtime purposes dependson the number of hours that the employer
and the employee understand that thesalary is intended to cover, provided
the employee is reasonably expectedto work for that number of hours.
So, for example, if the employer and theemployee understand the salary to cover
(03:39):
45 hours, Then the employer may calculatethe regular rate of pay by dividing
the weekly salary, in addition to anyother form of compensation, by 45 hours.
Keep in mind, though, that somestates have different rules.
So in California, for example, employersare limited to dividing the weekly
salary by a maximum of 40 hours whencalculating the regular rate of pay
(04:01):
for non exempt salaried employees.
Jim (04:04):
So Meryl, when it comes to non exempt and non exempt salaried employees, is
there anything else you'd like to cover? 70,
Meryl (04:10):
Yes, there is.
So with non exempt and non exemptsalaried employees, keeping an accurate
record of hours worked is critical tohelp employers comply with the law.
And keep in mind that under the FLSA,hours worked includes not only productive
time, which is the time you actuallyspend working, but also certain non
productive time, such as rest breaks,travel time, and training time.
(04:33):
And all of this must be included whendetermining whether you have met your
minimum wage and overtime obligations.
Jim (04:39):
So Meryl, in addition to keeping an accurate record of hours, what
other types of records must employerskeep for non exempt employees?
Meryl (04:47):
There are a number of records.
So employers have to maintain theemployee's name, their home address,
occupation, sex, and birth dateif they're under 19 years of age.
They have to keep the hour andday when the work week begins, the
total hours worked each work dayand each work week, the total daily
or weekly straight time earnings.
Um, the regular hourly pay rate forany week when overtime is worked, the
(05:10):
total overtime pay for the work week.
They also have to maintain deductionsfrom or additions to wages and the total
wages that are paid each pay period,in addition to the date of payment
and the pay period that's covered.
Jim (05:24):
So Meryl, what if the regular time or overtime that the non exempt employee
worked wasn't authorized in advance?
Meryl (05:31):
Under the FLSA, if a non exempt employee has worked overtime, they have
to be paid an overtime premium regardlessof whether the overtime was preauthorized.
So if you have a policy that no overtimework is permitted unless it's authorized
in advance, that still doesn't relieveyou as the employer of this requirement.
And also, employers can'twithhold pay for time worked.
(05:52):
If the employee clocks in beforetheir scheduled start time either.
Jim (05:56):
All right, Meryl, let's switch gears.
Let's turn to exempt employees.
What is an exempt employeeand what sets them apart?
Meryl (06:03):
So as I briefly mentioned earlier, under federal law, an exempt employee
is someone who is not subject to certainrequirements under the FLSA, including
federal overtime and minimum wage.
These employees typically work inthe administrative, professional, and
executive roles, and to be consideredexempt, they have to satisfy three tests.
So the first is the.
Salary level test.
(06:24):
As of July 1, 2024, employers mustpay employees a salary of at least
844 per week to meet the salarylevel test for these exemptions and
then effective January 1st, 2025.
The minimum salary required forthese exemptions is scheduled
to increase to 1,128 per week.
(06:46):
And then the second testis a salary basis test.
And this means that with very limitedexceptions, the employer must also pay
employees their full salary in any weekthey perform work, regardless of the
quality or the quantity of the work.
And then the third test, which isjust as important, is the duties test.
And under this test, theemployee's primary work duties
(07:07):
have to meet certain criteria.
So unless all of these tests are met,the employee must be classified as non
exempt, and they would then be entitledto at least the minimum wage for each
hour worked and overtime pay if theyworked more than 40 hours in a work week.
Jim (07:23):
So Meryl, a moment ago you mentioned that some states have
their own rules for exemption.
How do these impact employers?
Meryl (07:30):
Yes, a number of states do have their own salary and duties tests for
determining whether an employee isexempt from overtime under state rules.
And generally, if the state law is moreprotective of the employee, and that means
the law requires a higher salary amount orhas a duties test that's harder to meet,
then the state law should be followed.
(07:51):
Complicating matters is thatsome states have exemptions from
overtime, but not from minimum wage. 135,
So in those states, an exemptemployee's salary generally must also
be sufficient to satisfy the minimumwage for all hours worked in a work
week to maintain that exemption.
Jim (08:07):
Meryl, it's always fascinating to hear and have you
share your information with us.
It's useful and helpful.
And this actually brings usto the end of our episode.
Thanks once again.
I enjoyed having you here on the show.
So let's, um, let's recapsome notes I've taken.
And please keep me honest.
Um, I'll start with non exemptemployees are entitled to at least
the minimum wage for each hour workedand overtime whenever they work
(08:30):
more than 40 hours in a work week.
Non exempt employees are typicallypaid on an hourly basis, but may be
paid as a salary instead, provided theemployee's pay for each hour of work
meets or exceeds the minimum wage and theemployee is paid overtime whenever they
work more than 40 hours in a work week.
Third point here is, for overtimepurposes, the regular rate of pay
(08:52):
of a non exempt salaried employeedepends on the number of hours the
employer and the employee understandthat the salary is intended to cover,
provided the employee is reasonablyexpected to work that number of hours.
State rules may differ.
Another point here was accuratelyrecording hours worked is key to
complying with minimum wage and overtimerequirements for non exempt employees.
(09:13):
Another point here I took was, uh,under the FLSA, if a non exempt employee
has worked overtime, they must be paidan overtime premium, regardless of
whether the overtime was preauthorized.
And my last summary here is statelaws should also be considered.
Meryl (09:28):
Well said and well summarized.
Okay.
Thank you, Meryl.
Jim (09:31):
Presented by ADP, HRpreneur focuses on the entrepreneurs and business
drivers who are shaping the growthof their companies and positively
impacting the lives of their employees.
With each episode, we bring the expertsto you, we answer your questions, and
help you think beyond today so youcan discover more success tomorrow.
Thanks also to our listeners forjoining us for today's episode.
(09:52):
Be well, and we hopeyou'll join us again soon.
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