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One of the most important things HR has to keep track of for compliance is which employees are exempt vs. non-exempt.
One of the most important things HR has to keep track of for compliance is which employees are exempt vs. non-exempt. This article will go over the main differences between these categories, how to determine if an employee is exempt or non-exempt under federal law, how that will impact a company’s employees, and how to determine an employee’s classification.
The FLSA, which stands for Fair Labor Standards Act, is a government act that establishes standards regarding overtime pay, minimum wage, recordkeeping, and youth employment. The original Fair Labor Standards Act was signed in June of 1938 but has been updated since, such as when an updated federal minimum wage of $7.25 per hour went into effect in July of 2009.
One of the many things the FLSA governs is which employees are exempt and which are non-exempt.
Exempt employees are non-hourly employees that receive a regular, predetermined salary at certain intervals. Usually, this means that they are exempt from minimum wage and overtime pay, meaning they are not entitled to either. Salaried employees may receive their pay weekly, biweekly, bimonthly, or even monthly; the time intervals between salary payments do not have an impact on whether or not an employee is considered exempt.
Non-exempt employees are usually hourly employees and are eligible for both minimum wage and overtime pay. Overtime pay for non-exempt employees is calculated at 1.5 times their regular hourly pay for any hours worked over the standard hours for their job (usually 40) in a given week. Overtime pay is subject to both federal and state standards, so it’s important to make sure that all non-exempt employees are compensated accordingly.
A full-time employee in the United States is someone who works between 30-40 hours a week or 130 hours a month. A part-time employee in the United States is someone who works fewer than 30 hours a week. A part-time employee can be hourly or salaried. This type of employee is usually not entitled to any benefits and may not receive any type of paid time off. However, employers are responsible for paying taxes for both types of employees.
According to the Fair Labor Standards Act, hourly employees are classified as “an employee who is employed on a salary, wage, commission or piecework basis and paid at least once per month.” Hourly employees receive their earnings according to the number of hours they work. Hourly employees in the United States need to be classified as such according to the Fair Labor Standards Act. Those that fall under this category are those who earn only on a salary, wage, commission or piecework basis and are paid at least once per month.
Salaried employees are usually employed full-time and receive a fixed salary each pay period. For salaried nonexempt workers, their salary is for a fixed number of hours per week, and they are eligible for over-time pay if they exceed that number.
A person is classified as temporary or seasonal by HR, if they work for the company for 3 months or less in a year. Temporary or seasonal employees are a cost-effective way for companies to fill gaps in their workforce. If an employer hires a temporary or seasonal worker directly, instead of through an agency, the employer is responsible for tax withholdings. Seasonal workers are entitled to unemployment and Social Security benefits.
If you have a worker classified as an independent contractor, the company is not required to provide them with benefits such as health or disability insurance. Contractors, consultants, freelancers and similar classifications often differ in the type of work they perform or the way they perform it.
An independent contractor is defined by the IRS (Internal Revenue Service) as someone who operates in a business that they own and offer services in an independent way, rather than being associated with one company. However, there are many complications in classifying an individual independent contractor. We typically recommend that employers consult with their state and local laws to ensure compliance.
In the US, contractors can be classified as either 1099 or W-2. These two classifications deal with two different tax methods. 1099 contractors are usually self-employed and considered independent workers while W-2 contractors are employees of the hiring company and subject to social security contributions.
An intern is an employee of a company who has not yet been classified as a regular employee and has no benefits. Interns are people who want to get a taste of what working in a company is like. It’s a short-term work opportunity that gives interns the chance to learn, grow, and explore their interests outside of the classroom.
Internships are often unpaid but they can be great for gaining experience and knowledge about a particular career field. Many internships require students to enroll in classes at local colleges or universities, which make them appealing for students who need credits, not jobs.
To be classified as an intern in the US, one must work fewer than 8 hours per day and have no authority to make a final decision on behalf of the company. There are stipulations around what an intern’s duties can be, particularly unpaid ones, so employers should consult with local and state guidance.
To determine if an employee is exempt or non-exempt, it’s important to review the requirements from the Department of Labor for different types of exemptions. As of this writing, there are 5 different types of exemptions: executive, administrative, professional (which has two subcategories), computer employee, and outside sales. It’s critical that HR departments are sure that they are applying the appropriate exemption requirements to people in the relevant roles.
For this type of exemption, the employee must:
For this type of exemption, the administrative employee must:
This type of exemption has two subcategories: learned professional and creative professional. Each one has different requirements.
To be considered an exempt learned professional employee, the employee must:
To be considered an exempt creative professional employee, the employee must:
In order to qualify for this type of exemption, the employee must:
In order to qualify for this type of exemption, the employee must:
Exempt vs. non-exempt employee classification is just one of the many aspects of compliance you’re responsible for as an HR leader. If you’re ready to work smarter with powerful HR software, take a tour of GoCo and learn how we can help you manage compliance and more in a flexible, streamlined way.
The main differences between exempt and non-exempt employees are:
Worker classification impacts employee wages and scheduling based on which employees are able to receive overtime pay. While an hour or two of overtime every now and then may not be of much significance, it can add up over time or across several employees, so it’s important to consider which employees are eligible for overtime wages when scheduling out each week.
In general, salary workers are exempt, and hourly workers are non-exempt. There are notable exceptions to this general guidance, so be sure to review the FLSA requirements for employees to be considered exempt each time an employee’s classification is determined as exempt or non-exempt.