In most organizations employees fall into two categories—exempt and non-exempt status. The exempt and non-exempt terms was brought into effect through the Fair Labor Standards Act (FLSA) and was written to protect employees from being required to work long hours with out being compensated and an incentive for employers to attract potential candidates. The difference between the two categories could cost the organization quite a lot of money. This means that employees who fall into the exempt status are exempt from overtime regulations and minimum wage laws. On the other hand, employees who are classified as nonexempt must be paid for every extra hour of overtime they work.
According to the U.S Department of Labor (2007), the Fair Labor Standards Act (FLSA), requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek. In addition, the FLSA also dictates that an employee’s title does not determine their status. In other words, for an employee to be considered exempt the employee’s pay and specific job duties must meet all the requirements. Regardless of the number of hours worked exempt employees do not receive overtime pay. However based on the supervisor’s discretion employees are offered compensatory time for excess hours worked.
Determining exemption status can sometimes be a very complex process. To determine employers have to consider the primary purpose of the position and how the tasks fits with the purpose. According to Turner (n.d), job analysts use organizational charts, compare similar positions, use field manuals, and read the FLSA guidebooks to determine the category. Misclassification of status can result in severe penalties for employers. In some cases employers are required to pay back pay of up to two years for any employee who is misclassified as exempt.
Exempt employees are generally paid for any full week in which they perform work without regard to the number of days or hours worked. Paid vacations, time off and holidays are all fringe benefits offered by employers. That is why employers must be careful when deducting unpaid time off, especially if organizations do not provide paid vacation or personal day. Then this could be deducted from employees’ salary. On the other hand, the FLSA states that employers may make pay deductions when an employee is absent for a full day for personal reasons when paid vacations, time off and holidays are granted. Similarly, if you give paid vacation days and the employee has used them all, you may deduct any additional personal time off.
Non-exempt employees on the other hand are required to work a certain number of hours in a week period and if that number is met and exceeded it is then considered overtime. Non-exempt employees are required to maintain a regular schedule to track actual hours worked. Ensuring that all procedures and policies are clear with regards to recording time and working overtime are all important information that should be communicated to the employee.
According to the Business Owners (2007), The Federal Fair Labor Standards Act requires, among other things, that a minimum wage be established, and that all nonexempt employees be paid that minimum wage. This rate must be paid to all nonexempt employees for each hour worked up to 40 hours and must be paid time and a half for time worked beyond. However, in complying with the laws, employers must validate that employees did work the time indicated, computed at the employee’s regular rate and ensure that the organization maintain an equal pay requirement.
The FLSA is a useful tool to help guide employers as well as employees determine the criteria for exemption. The law guides both categories and as noted job titles should not be the only criteria for claim exemptions and surely not simply paying on a salary. This means that each and every situation must be looked at individually. Exempt positions are excluded from minimum wage; and overtime regulations unlike nonexempt employees who are allowed overtime and must be paid for time worked over the specified number.
Business Owners Toolkit (2007). Exempt and Nonexempt Employees. Retrieved
November 19, 2007, from http://toolkit.com
Turner D. (n.d). Non-Exempt and Exempt: What do these terms men and why does it
Matter? Retrieved November 19, 2007, from http://www.purdue.edu
US Department of Labor (2007). Fair Pay Fact Sheet by Exemption Under the Fair
Labor Standards Act. Retrieved November 19, 2007 from http://www.dol.gov