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We all have seen these worker classifications when applying for a position or submitting a job requisition.  Here is a quick overview on the difference between these terms.

The Fair Labor Standards Act (FLSA) requires that employees are classified as either “exempt” or “non-exempt” by their employers.  Exempt employees, as implied by the term, are exempt from FLSA regulations.  Non-exempt employees are protected under the FLSA rules and regulations.  Employee classifications under FLSA can be a tricky subject as the following general rules apply:

1. That the employee, in order to be exempt, is employed in bona fide "professional capacity", and must meet all qualifying standards enumerated in regulations.
2. That the employee's actual work duties, rather than education, experience, or job title, control exempt status

Differences in pay structure and overtime

Exempt employees are paid a salary rather than an hourly wage.  Exempt employees are expected to work as many hours necessary to complete their respective tasks, regardless of whether that requires 40 hours per week or 60 hours per week.  Their pay structure doesn’t deviate on the actual hours expended to complete projects. 

Exempt employees are not protected by FLSA rights pertaining to overtime compensation to which non-exempt employees are entitled.  FLSA overtime rules mandate that employees classified as non-exempt must be paid the federal minimum wage for every hour worked, and overtime pay is paid at one and one half times their hourly rate for any hours worked over 40 per week.

Tax Differences

There is no difference on how exempt or non-exempt employees are taxed.  The term “earned income” refers to all compensation and is taxable based on the level of income.  Income is the same, regardless if it is hourly or salaried. 

Employee Rights and Benefits

Exempt and non-exempt employees are usually treated similarly by their employers.  Federal and state legislation regulates the right to a safe work environment, equal employment opportunities, family and medical leave, and child labor laws.  In addition, exempt and non-exempt employees may receive identical company benefits.  Both exempt and non-exempt employees are entitled to unemployment benefits.  Unemployment benefits differ from state to state, so check with your state’s department of labor to make sure you are in compliance.