What Is An Exempt Employee? (With Examples)

In the workplace, employees can be sorted into two basic categories — “exempt” and “non-exempt.”

You’ve likely been prompted to specify which type you are on a job application, though you might not know what the distinction is.

Exemption is determined based on eligibility requirements and correlates to different workplace benefits. The common factor of exemption is pay for overtime work. If an employee is “exempt,” they cannot receive overtime pay.

This article addresses the difference between an exempt and non-exempt employee in the workplace. You’ll be introduced to the different types of exempt employees, as well as the guidelines that dictate exemption.

The Difference Between an Exempt and Non-Exempt Employee

“Exempt” and “non-exempt” — they sound kind of vague, don’t they? The words themselves don’t give much context for how these categories are determined, but it’s a bit more complicated than the simplicity would lead you to believe.

Employers are the ones most responsible for being aware of the exempt and non-exempt statuses of their employees. This kind of knowledge enables employers to distribute duties and wages fairly based on workplace responsibilities.

The classification of exempt versus non-exempt employees is required by The Fair Labor Standards Act (FLSA), which outlines standards for minimum wage and overtime pay. Only non-exempt employees are protected by FLSA rules, while exempt employees have their pay determined by employers.

The federal government and individual states also have their own laws regarding employment classifications. These laws are in addition to those mandated by FLSA, so employers have to adhere to both.

What Is an Exempt Employee?

An exempt employee cannot be compensated for overtime pay and is not eligible for minimum wage. Rather than an hourly rate, these employees receive a salary relevant to the work they do; not necessarily how many hours it takes to do it.

Employers are not required to pay exempt employees for any overtime work. Compensation may vary depending on the company, as it is up to the employer’s discretion whether or not they pay for overtime.

Consider the stereotype of the ambitious company director who stays late at the office four nights a week. The scope of their job requires that they dedicate a lot of time to projects, but their status as an exempt employee means that their compensation is fixed at a salary.

To make up for the lack of overtime pay, salaried workers can negotiate raises and often receive year-end bonuses. Employers also offer exempt employees compensatory time off, often referred to as “comp time.” Instead of paying for time worked or travel time, the employee would receive time off as compensation.

When people refer to “benefits” as part of a job position, comp time is included.

There are very specific work positions that correlate to exemption. This applies to those employees that perform executive, administrative, professional, outside sales, and highly compensated work duties in a given workplace.

If all of that wasn’t complicated enough, there are also federal, state, and FLSA laws for workers such as interns, independent contractors, temporary employees, volunteers, workers-in-training, and foreign workers. Employers sure have a lot to keep track of!

What Is a Non-Exempt Employee?

A non-exempt employee is eligible for overtime pay, and hourly and minimum wages, as per FLSA regulations. Employers are required to pay overtime when employees exceed the 40-hour limit in a given workweek.

You may have heard of receiving “time and a half” for overtime work. This refers to a payment of the federal minimum wage for regular work time plus one-and-a-half times the hourly rate for any hours over the standard 40-hour workweek.

Non-exempt employees could potentially earn more than the federal minimum wage ($7.25 as of 2020), but they still operate under the authority of a supervisor. Without holding administrative or executive positions, they cannot qualify for overtime pay exemption.

Types of Exempt Employees

There are six main types of exempt employees, all outlined by The Fair Labor Standards Act:

• Executive

• Administrative

• Professional

• Outside sales

• Computer

• Highly compensated employees

These categories can include many different job titles and have purposely broad titles to leave room for them. It’s important to note that the job title alone doesn’t dictate exemption status — the tasks performed by the employees who hold those titles are the deciding factors.

The following is an outline that specifies the guidelines for exemption status in each category. All of these requirements are decided by the U.S. Department of Labor, as of January 1, 2020.

Executive Exemption

Executive exemption status requires that an employee:

• Manage at least two or more full-time employees

• Be responsible for managing a company or a department of that company

• Have the authority to hire or fire employees or change their job status in any way

An executive employee could be the CEO, manager, supervisor, or anyone in a strong decision-making role in a workplace.

Administrative Exemption

Administrative exemption status requires that an employee:

• Perform office or non-manual work related to the operation of a company as a primary duty

• Exercise discretion and independent judgment when making decisions regarding the company

An administrative employee could work in human resources, public relations, accounting, legal, or finance and payroll.

Professional Exemption

Learned professional exemption status requires that an employee:

• Perform work that requires advanced, intellectual knowledge of a science or learning field

• Have higher educational qualifications in their field

A learned professional employee could be a doctor, lawyer, teacher, licensed engineer, or anyone with a job that requires an advanced level of higher education.

Additionally, creative professional exemption status requires that an employee:

• Perform work that regularly exercises invention, originality, imagination, or talent in an artistic or creative field

A creative professional employee could be a musician, actor, artist, or writer— anyone working in the arts or creative spaces.

Outside Sales Exemption

Outside sales exemption status requires that an employee:

• Make sales or obtain orders or contracts as primary duties

• Perform their work away from their place of business

Salespeople or marketers generally work as outside sales employees.

Computer Exemption

Computer exemption status requires that an employee:

• Be employed as a computer systems analyst, computer programmer, or software engineer

• Perform various duties involving the design, development, or documentation of computer systems or programs

In this case, the job titles are included in the requirements for the exemption status. But, to reiterate, most computer-related jobs include programmers, software engineers, and systems analysts.

Highly Compensated Employees Exemption

Highly compensated exemption status requires that an employee perform office or non-manual work and is paid a minimum of $107,432 annually. They must also regularly perform at least one duty of an executive, administrative, or professional exempt employee.

Commissions and bonuses often apply to highly compensated employees.

Guidelines for Exemption From Overtime Pay Requirements

We’ve already discussed the exemption guidelines for each individual type of exempt employee. Beyond that, there are a few overarching requirements on the federal and state level.

According to the U.S. Department of Labor, all of the above listed employees should be classified as exempt, and are ineligible for overtime pay if they meet all of the following criteria:

• Employers are paid a salary, not an hourly wage

• Employees earn no less than $684 in work week or $35,568 annually

• Employers receive salary payments for any week they work

As of January 1, 2020, the criteria have been amended to specify that any employee whose salary is less than $684 a week must receive overtime payment, even if they have been classified as exempt.

On a state level, there might be more specifications as to what could classify an employee as exempt. California, in particular, requires that exempt employees must be paid at least twice the minimum wage to qualify for exemption status. New York is more of a sensitive case, where salary rates for executive and administrative positions vary depending on location and employer size.

Contact your state labor department for more information on how wages could potentially factor into your exemption status.

Pros and Cons of Being an Exempt Employee

Pros:

• Income security

• Higher earning potential

• Access to more benefits

Cons:

• Don’t qualify for overtime or minimum wage

• No extra compensation for extra work

• Less flexible schedule (typically)

Pros and Cons of Being a Non-Exempt Employee

Pros:

• Overtime pay means busy seasons will net higher income

• More flexible schedule (typically)

• Qualify for minimum wage

Cons:

• Less stable income

• Lower total income (typically)

• Less access to benefits

Exempt and Non-Exempt Remote Workers

One last tricky little issue involves non-exempt remote workers. For exempt remote workers, it’s essentially the same as being in an office — nobody is keeping track of your work hours, and as long as you get your assignments done, you can expect to continue earning your salary.

But for remote workers who are paid an hourly wage instead of an annual salary, tracking hours can be challenging. In August of 2020, the Department of Labor issued guidance stating that “employers must use reasonable diligence in tracking non-exempt telecommuters’ work hours and may do this by providing a reporting procedure for unscheduled time.”

Basically, this ensures that non-exempt remote workers are paid for all work hours, as long as those are hours fall within the normal pre-arranged work hours or were otherwise approved.

The catch is that accurate and mutually agreed upon timekeeping procedures need to be established from the get-go, or else an awkward wage dispute could lead to an untimely end to a professional relationship. The DOL guidance allowed employers to nix complicated IT records to find out working times.

Instead, good-faith agreements are essential and communication is an absolute must.

The employer is not responsible for “impractical efforts to investigate further to uncover unreported hours of work and provide compensation for those hours.” In other words, the onus falls on the remote employee to request and receive approval for additional work hours.

Final Thoughts

If you’re feeling a little overwhelmed by all the verbiage and information, that’s understandable. Let’s try breaking it down with an example.

Consider these hypothetical people to demonstrate all we’ve covered about the difference between exempt and nonexempt employees:

Victoria works as a public relations director, in charge of branding for a cosmetics company. She stays late at the office one night to polish a proposal for a marketing campaign. When she receives her paycheck at the end of the pay period, the amount reflects a regular payment, regardless of extra hours put in.

Eve is an assistant editor at a publishing house. She works overtime on Wednesdays, staying an hour or two after her 5:00 pm shift ends. When she receives her paycheck, it reflects an increased payment for the extra hours worked.

Both cases reflect a particular set of eligibility requirements that determine their work benefits and wages.

Really, it’s a lot more complicated on the employers’ end, but employees should also be aware of the laws that factor into their everyday work life and, most importantly, how they get paid.

Author

Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.