Exempt Employee

What is an exempt employee?

Exempt employees are excluded from the minimum wage and overtime pay provisions based on criteria outlined in the Fair Labor Standards Act (FLSA). One of these provisions is receiving a salary rather than an hourly wage, but salary alone doesn’t automatically make an employee exempt.

These employees typically work in “executive” or “professional” roles. Exempt positions are excluded from the rights and regulations under the FLSA—including minimum wage and overtime. Non-exempt employees are covered under FLSA regulations.

Exempt status under the FLSA only applies to employees working for an employer—not independent contractors or volunteers. In addition to the FLSA, many states also have their own set of wage requirements and laws that employers must abide by.

What are the FLSA regulations exempt employees don’t get?

A key distinction between exempt and non-exempt employees is how they are paid. Exempt employees are typically not subject to overtime and minimum wage provisions by the FLSA. Instead, they are paid a fixed salary or fee, meaning they receive the same salary each week regardless of the amount or quality of work performed.

With a few exceptions, such as during the first and last week of employment or when on unpaid Family and Medical Leave Act (FMLA), an exempt employee is entitled to their full salary for any week they work, no matter how many hours or days they put in.

For non-exempt employees, the FLSA requires employers to pay them at least 1.5 times their regular hourly rate for any work beyond 40 hours a week. If a non-exempt employee isn’t paid hourly, their hourly rate can be calculated by dividing their total earnings by the total hours worked. However, vacation, holidays, or sick days aren't included in these calculations unless the employee worked on those days.

The Department of Labor (DOL) has set rules for determining who qualifies for overtime. Employers shouldn't automatically assume that employees are exempt simply because they earn a salary. Workers who earn below the required salary threshold, receive a fixed salary, or don’t meet the duties test for exempt employees, may still be entitled to overtime pay.

What qualifies an exempt employee?

In 2024, the US Department of Labor published a final rule on the classification of exempt employees. For most employees, qualifications for exempt status depend on three factors:

• How they are paid
• How much they are paid
• What kind of work they do

Requirements may also vary from state to state, but the following guidelines generally apply when distinguishing between exempt and non-exempt employees. For exempt employees:

• They are paid for the work or tasks they perform (salary), not the hours worked (hourly).
• They must earn more than $684 per week (equivalent to a $35,568 annual salary).
• Total annual compensation level for highly compensated employees is at $107,432.
• The employee's primary responsibility must involve tasks that require advanced knowledge, meaning the work is primarily intellectual and involves the regular use of discretion and judgment.
• An employer is required to pay an exempt employee at least 90% of the standard salary level each pay period, which equates to $615.60 per week.
• The remaining portion of the required salary, up to 10%, may be fulfilled through nondiscretionary bonuses or incentive payments as long as they are paid at least annually.

It’s important to note that being paid a salary isn't the same as being exempt. To qualify as exempt, an employee must be paid a salary and perform the duties of an exempt employee, also called the duties test.

What are exempt job duties?

The Fair Labor Standards Act (FLSA) recognizes three main categories of exempt workers, which are broad enough to encompass many types of jobs:

• Executive
• Professional
• Administrative

The common factor in all these categories is that a worker performs relatively high-level work involving significant use of judgment and discretion. The tasks performed on the job, not the job title, determine the exempt status of a position.

Executive job duties

Job duties qualify as exempt executive duties if the employee:

• Has the authority to hire and fire (or make recommendations about hiring, firing, or changes in job status)
• Regularly supervises two or more other full-time employees
• Manages or is “in charge” of a unit or subunit of the organization.

Administrative job duties

Employees are performing exempt administrative job duties if they do non-manual or office work that supports the overall business operations of the employer, and involves exercising independent judgment and discretion on important matters.

This is the most difficult of the exempt job classifications. Clerical work, for example, may be administrative, but isn't exempt.

Most secretaries perform work that is considered administrative, but their jobs aren't usually exempt. However, some may be “high-level” administrative exempt employees. Therefore, each job must be evaluated individually.

Professional job duties

To meet the professional exemption status, employees must meet the following requirements:

• Their job duties must involve specialized knowledge typically gained through advanced education, and they must regularly exercise independent judgment and discretion in their work.
• They must have a college degree or a higher academic qualification relevant to their field of expertise.
• For those in artistic or creative roles, they may be eligible under the creative professional exemption, which applies to individuals who rely on originality, talent, imagination, and inventiveness to carry out their duties.

Exempt vs. non-exempt employees

While exempt employees don't enjoy the benefit of being paid overtime when they work over 40 hours in a workweek, there are several reasons an employee would want to be exempt.

Pros of being an exempt employee

• In general, executives, administrators, and professionals are more highly paid than most regular employees.
• There's security in receiving the same amount of pay for each pay period.
• Exempt employees typically have a more flexible work environment with more freedom and control over their working hours.
• A salaried position often includes eligibility for certain benefits, such as a paid vacation and sick days.
• Some feel that there's more prestige or standing with exempt positions.

Cons of being an exempt employee

• Working long hours and not being eligible for overtime pay
• Most companies often trim headcount to achieve better financial results一meaning an exempt employee could be doing the work of more than one employee.

Pros of being a non-exempt employee

• Eligible to receive overtime compensation, typically calculated at one and a half times their standard hourly wage.
• May find it easier to get jobs, as these roles often require fewer skills, specialization, or are suited to entry-level candidates.
• Benefit from stronger protections under the Fair Labor Standards Act (FLSA).

Cons of being a non-exempt employee

• Generally, they receive lower compensation, as these positions typically don't require extensive experience or advanced expertise.
• Career development may be more limited due to the nature and level of the role.
• Not entitled to pay if they can't work due to circumstances that prevent their physical presence.