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Payroll & Taxes

Exempt vs. Non-Exempt Employees

Christine Batten, PHR
by Christine Batten, PHR on November 20, 2013

exempt employeesI Have Employees to Pay… Now What?

You may find yourself asking “I have employees to pay… now what do I do?” Managing payroll for employees can be a tedious and sometimes difficult task. I've put together a 5 part blog series on wage and hour fundamentals to help you in the process.

I will be discussing how to handle important topics such as determining hours worked, drive and travel time, deductions from pay and overtime for your employees. The first part in this blog series deals with exempt vs. non-exempt employees.

Exempt vs. Non-Exempt Employees

One of the first - and perhaps most important - steps is to be sure every employee is properly classified. All employees are either exempt or non-exempt. This classification will determine all the aspects related to wages for each individual that are necessary to remain in compliance with wage and hour laws.

Exempt employees are those who must meet certain requirements for an exemption. “Exempt” means exempt from the minimum wage and/or overtime provisions of the law. Exempt employees are often times in a supervisory or management position (however, there are a variety of exemptions depending on the type of industry or position of an individual). While exempt employees are not entitled to overtime if they work more than 40 hours in a workweek, employers may not pay them less for working fewer hours (with very limited exceptions). More details will come on this in an upcoming post regarding deductions from pay.

Non-Exempt employees are those who are covered by the minimum wage and overtime provisions of the law. Employers are required to keep track of the number of hours worked by each non-exempt employee regardless of the method of pay. Wages to non-exempt employees can be paid by the hour, on a piece rate basis, by the day, with a commission structure, etc. – or any combination of these methods. None of which eliminate the requirement to 1) keep track of all hours worked including start/stop times, 2) pay at least minimum wage for all hours worked and 3) pay overtime when applicable.

Any employee can be non-exempt (i.e. paid hourly and overtime when applicable), but not just any employee can be exempt – they must meet the criteria for an exemption. Paying an employee a “salary” does not automatically mean they are exempt from other provisions of the law. Likewise, even if an employee’s duties qualify for an exemption, if you don’t follow the rules (i.e. if you reduce their pay), an employer will lose the exemption and could owe back wages for weeks in which the employee worked overtime.

Misclassification of employees as exempt when they do not meet the qualifications can be a very costly mistake. In a typical wage and hour lawsuit a non-prevailing employer will end up paying back wages plus damages equal to the amount of the back wages, fees to an attorney to represent them as well as the employees’ attorneys’ fees.

Please consult with one of our HR specialists for questions regarding classifying your employees. If you have questions regarding classifying your employees or are interested in ways that FrankCrum can help you with HR and wage and hour issues you’re currently facing, please contact us. We’re here for you.

Christine Batten, PHR
Christine Batten, PHR

Christine has over 20 years of HR related experience with a background in labor and employment law.