Getting employee classification right isn’t just an HR detail — it’s a legal requirement that impacts everything from overtime pay to benefits eligibility. Misclassifying an employee can lead to wage violations, penalties, and trust issues with your team. If you’re hiring or restructuring roles, this is something you need to get right.
Let’s break down the key differences between exempt and non-exempt employees so you can stay compliant and support your team appropriately.
Let’s break down the key differences between exempt and non-exempt employees so you can stay compliant and support your team appropriately.
What Does “Exempt” Mean?
An exempt employee is exempt from the Fair Labor Standards Act (FLSA) overtime rules. This means they are not entitled to overtime pay, regardless of how many hours they work in a week.
To qualify as exempt, a role typically must:
To qualify as exempt, a role typically must:
- Be paid on a salaried basis (not hourly)
- Earn at least the minimum salary threshold set by the Department of Labor
- Perform specific types of job duties (often executive, administrative, or professional in nature)
Examples include managers, accountants, and some high-level administrative roles.
What Does “Non-Exempt” Mean?
Non-exempt employees are eligible for overtime pay — usually time and a half for any hours worked over 40 in a workweek. These roles are more often hourly and are subject to detailed time-tracking and break regulations.
Non-exempt positions are common in roles like customer service, retail, and administrative support. It’s important to accurately track their hours and ensure proper compensation.
Why Classification Matters
Classifying employees correctly protects your business from legal risks and ensures your team is paid fairly. Misclassification is one of the most common wage violations small businesses face — and it’s often unintentional.
Here’s what can go wrong:
Here’s what can go wrong:
- Unpaid overtime liabilities
- Back taxes and penalties
- Employee dissatisfaction and retention issues
To make informed decisions, consider reviewing our post on employee classifications and how it ties into broader payroll planning like choosing a payroll schedule.
How to Stay Compliant
Here are a few best practices to help you get it right:
- Review job descriptions and responsibilities annually
- Compare each role against federal and state exemption criteria
- Document classification decisions and keep records
- When in doubt, consult an HR professional or employment attorney
Getting classification right is a win-win. You protect your business and give your team confidence that they’re being treated fairly. It’s a foundational piece of good HR — and a small detail that makes a big difference.