Exempt and NonExempt Employees – Definition

 Exempt versus Non-Exempt Employees Definition

This designation concerns employee wage overtime entitlements under the Fair Labor Standards Act. An exempt employee does not qualify for overtime wage protections.

A Little More on What are Exempt and Non-Exempt Employees

The difference between the two types of employee regards the entitlement overtime pay after the employee has worked a total of 40 hours in a single fiscal week. The exempt employee is generally as salaried, full-time employee who earns $26,300 per year (or $455 weekly) is not entitled to overtime pay for weeks in which she works more than 40 hours.
There are also some jobs that are classified as exempt by definition. For example, “outside sales” roles are exempt from the overtime law, while inside sales roles are not.
With few exceptions, to be exempt an employee must (a) be paid at least $23,600 per year ($455 per week), and (b) be paid on a salary basis, and also (c) perform exempt job duties. These requirements are outlined in the FLSA Regulations (promulgated by the U.S. Department of Labor). Most employees must meet all three “tests” to be exempt.
A salaried employee is one who has a guaranteed minimum amount of money for a fixed period of work. This is known as the “salary basis”. Generally, a salaried employee receives an annual compensation divided by the number of days they are expected to work. If an employee receives less salary if she works fewer hours in a week, then she is an hourly employee.The salary basis pay requirement for exempt status does not apply to certain jobs, such as doctors, lawyers and school teachers.
Finally, the employee must also perform exempt job duties. This usually consists of relatively high-level work. There are three typical categories of exempt job duties, called “executive,” “professional,” and “administrative.”

Exempt executive job duties include:
1. Supervising two or more other employees,
2. Having primarily managerial duties, and
3. Has influence over the job status of others.

Exempt professional job duties include:
These include the traditional “learned professions”, such as lawyers, accountants (not bookkeepers), doctors, dentists, teachers, architects, engineers, registered nurses (not LPNs), actuaries, scientists, pharmacists, and clergy.

Exempt Administrative job duties include:
(a) office or nonmanual work, which is
(b) directly related to management or general business operations of the employer or the employer’s customers, and 
(c) a primary component of which involves the exercise of independent judgment and discretion about 
(d) matters of significance.
This designation is for skilled professionals who “keep the business running.” These are not lower-level “operational” or “production” employees. Administrative employees are staff members that provide “support” to the operational or production employees. Examples of administrative employees include individuals in human resources, payroll and finance (or other accounting and tax functions), marketing and advertising, quality control, public relations, legal and regulatory compliance, and some computer-related or technology jobs.
What are the Rights of Non- Exempt Employees?
A non-exempt employee qualifies to receive overtime pay (1 and 1/2 times the base hourly rate) for each hour worked over 40 hours during a specified FLSA work period.

References for Exempt and Non-Exempt Employees


Academic Research on Exempt versus Non-Exempt Employees

  • ●      New work systems and skill requirements, Cappelli, P., & Rogovsky, N. (1994). Int’l Lab. Rev.133, 205. This paper analyses the policy consideration of different firms in industrialized countries on improving competitiveness without the reduction of wage standards.
  • ●      Executive pay and firm performance, Leonard, J. S. (1990). ILR Review43(3), 13-S. This study examines the effects of executive compensation policy and organizational structure on the performance of 439 large U.S. corporations between 1981 and 1985. This paper analyses the difference between companies with long term plans and those without plans between 1981 and 1985. Corporate success was not significantly related to the level of, or degree of equity in, executive pay, or to the steepness of pay differentials across executive ranks; it was, however, positively related to the extent of hierarchical structure, which appears to have been the primary mechanism for sorting individuals by human capital endowments and performance.
  • ●      The structure and performance consequences of equity grants to employees of new economy firms, Ittner, C. D., Lambert, R. A., & Larcker, D. F. (2003). Journal of Accounting and Economics34(1-3), 89-127. The paper examines the determinants and performance consequences of equity grants to senior-level executives, lower-level managers, and nonexempt employees of “new economy” firms. The main aim of this paper is to show using exploratory performance test, that lower than expected grants and/or existing holdings of options are associated with poorer performance in subsequent years.
  • ●      Research and practice in performance appraisal: Evaluating employee performance in America’s largest companies, Thomas, S. L., & Bretz Jr, R. D. (1994). SAM Advanced Management Journal59(2), 28-35. This paper studies the different conclusions on the relevance of employee performance appraisals. It also explores the different concerns of managers and performance appraisal researchers garnered from a recent survey of Fortune 100 companies.
  • ●      Stock-based pay in new economy firms, Murphy, K. J. (2003). Journal of Accounting and Economics34(1-3), 129-147. This research examines the extent to which newer companies rely upon stock compensation as opposed to traditional forms of compensation.
  • ●      Organizational application managing employee retention as a strategy for increasing organizational competitiveness, Ramlall, S. (2003). Applied HRM research8(2), 63-72. This paper focuses on reviewing the findings of previous studies conducted by various researchers with the aim to identify determinants factors of employee retention. This research closely looked at the following broad factors: development opportunities, compensation, work-life balance, management/leadership, work environment, social support, autonomy, training and development.
  • ●      Leadership style and post-merger satisfaction, Joyce Covin, T., Kolenko, T. A., Sightler, K. W., & Tudor, R. K. (1997). Journal of management development16(1), 22-33. This study explores the relationship between leadership style and post‐merger satisfaction, noting from the results that leadership style is significantly related to merger satisfaction for both acquiring and acquired firm employees, but that effective leadership style profiles vary for these two groups of employees. It goes on to suggest that appropriate leadership style can greatly enhance merger effectiveness.
  • ●      Examining the human resource architecture: The relationships among human capital, employment, and human resource configurations, Lepak, D. P., & Snell, S. A. (2002). Journal of management28(4), 517-543. In this study we examined the characteristics of human capital as well as the human resource (HR) configurations used for employees in four different employment modes (knowledge-based employment, job-based employment, contract work, and alliance/partnership). Results from 148 firms show that the strategic value and uniqueness of human capital differs across these four employment modes. In addition, each employment mode is associated with a particular type of HR configuration (commitment-based, productivity-based, compliance-based, and collaborative).
  • ●      HR outsourcing and its impact: The role of transaction costs, Klaas, B. S., McClendon, J., & Gainey, T. W. (1999). Personnel Psychology52(1), 113-136. This paper analyses the shifting role pof HR management activities from companies employees to independent contractors. Using a Transaction Cost Economics perspective, this study examined whether organizational‐level factors moderated the relationship between the degree of reliance on HR outsourcing and the perceived benefits produced by outsourcing.
  • ●      The social production of technical work, Whalley, P. (1986). In The Social Production of Technical Work (pp. 184-199). Palgrave Macmillan, London. This book’s initial interest in engineers stemmed from a conjunction of two concerns, each deriving from a separate tradition of intellectual discourse. On the one hand engineers have received attention as bearers of a special kind of knowledge, knowledge critical to production in high-technology industries. A knowledge expected to generate a crisis of organisation and legitimation in profit-oriented busienss, as control over the dominant force of production — now no longer capital or labour, but knowledge — fell into the hands of technical experts.
  • ●      Work values and organizational commitment: A study in the Asian context, Putti, J. M., Aryee, S., & Liang, T. K. (1989). Human relations42(3), 275-288. This paper seeks to investigate the association between work values and organizational commitment in the Asian context. This paper aims to show that intrinsic work values relate more closely to organizational commitment than either the global measure of work values or extrinsic work values, by utilizing different models.

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