Exempt is an adjective that you could come across when signing up for a work contract and it’s tied with the two most popular employment types.
The word itself means something is free from liability or an obligation, but how does that apply to employees?
In this article, you’ll find a difference between exempt and non-exempt employees and how it affects their salary, benefits, and working hours. You’ll even find out which type of employment is better so stay tuned!
What is an Exempt Employee?
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An exempt employee is someone who receives a steady paycheck every month without overtime pay but is subject to being paid above the minimum level.
These types of employees are paid a salary (known as a yearly salary) for the role where they have to fulfill and accomplish the requirements with plenty of management freedom.
Therefore, exempt employees aren’t paid by the hour. With that comes the security of having extra benefits such as 401K plans, IRAs, and pensions.
Other benefits include bonuses, paid sick leave, paid vacation time, and even the company’s healthcare plans.
Another thing you can notice is that exempt employees work in professional or executive roles, administrative jobs, the STEM industry, or computer-related jobs.
What is a Non-Exempt Employee?
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A non-exempt employee is someone who is paid by the hour and works about 40 hours a week with the ability to get paid for any overtime hours.
These types of employees are eligible for minimum wage and the whole law behind this type of employment is different so it brings different rights. We’ll touch more on the laws later in the article.
Non-exempt employees are usually a workforce who’s been expected to carry out orders without bringing a management mindset to their tasks.
That’s why non-exempt employees work in jobs that range from minimum wage jobs to better-paid jobs in maintenance, construction, manufacturing, and other similar industries.
However, non-exempt employees are also classified by law to make $648/week or less on average. At the same time, they’re required to be paid 1.5x the hourly rate for every overtime hour they make in a week or a month.
And in some situations, it doesn’t mean that non-exempt employees make less money or have a harder time at all. There are many differences between these two types of employees so keep on reading to dive right into it!
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Difference Between Exempt and Non-Exempt Employees
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There are many differences between these two options that could make a big impact on the selection of your career.
Here are some of the things you should know and remember about exempt employees:
- They’re paid a yearly salary (paid above the minimum wage)
- Do not receive pay for overtime hours
- Work is in professional or executive roles
- Earns a minimum of $684/week or $35,568/year
So the main advantage includes a steady paycheck, bonuses, benefits, and above minimum wage pay.
Some of the disadvantages include not being paid for working overtime hours while you still might end up working late hours on certain projects.
On the other hand, here are some of the things you should know about non-exempt employees:
- They qualify for a minimum wage
- Have different rights as they’re categorized differently (due to the federal designation)
- Are paid for overtime hours (1.5x the hourly rate for every overtime hour)
- Earn $684 or less per week ($35,568 or less a year)
- Work is in the workforce, labor, retail, and similar roles
While non-exempt employees don’t always get bonuses, healthcare plans, and additional benefits, they do get paid by the hour with the chance of earning extra by being paid 1.5x the hourly wage for hours they work over 40 hours per week.
However, another key thing to keep in mind is that non-exempt employees can be paid for overtime hours, but are not legally entitled to collect it unless the employer provides it on its own. This means that not every non-exempt employment role will pay for overtime.
The nature of their work is to mostly fulfill duties with higher supervision and less independent judgment or management involved.
These are some of the differences you should remember. If you’re wondering which one is better or which employment type should you seek, keep on reading for our view on this matter!
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Is it Better to Be an Exempt or Non-Exempt Employee?
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On paper, being an exempt employee seems to be a better choice due to the safety and security of a steady paycheck that includes bonuses and benefits.
However, each employment type has its advantages and disadvantages.
The biggest drawback of being an exempt employee is the possible lack of work-life balance.
The nature of the roles exempt employees do can include longer hours (which are not reimbursed), a lot more stress, and pressure from having to manage or single-handedly make important decisions.
On the other hand, non-exempt employees might not have the security and stability that exempt employees do. However, they don’t necessarily make less money since they can be paid overtime.
While there’s a lack of security and safety, non-exempt employees are able to manage a better work-life balance while still making a decent living even if their roles are not at the top of the chain.
The biggest drawback of non-exempt employment (besides the security) can lay in the actual job, as you’ll be directly managed from above.
This might not always be the most pleasant way to work since you’ll constantly be at the mercy of your bosses even if you’re not fulfilling a complex role.
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Law Behind the Exempt and Non-Exempt Employees
The important key for non-exempt employees is that they’re covered and protected by the Fair Labor Statement Act (FLSA). It’s a law that sets the minimum wage, but also the overtime requirements for employers to follow.
The whole act was created back in 1938 when a whole division of administration worked on covering private workers and even government employees.
The latest FLSA update was on January 1st, 2020 increasing the minimum hourly pay to $7.25/hour for non-exempt employees.
You’ll also find that the number of hours you can work and overtime pay requirements are also dictated and set by the FLSA. They even cover child labor laws and they’re the ones who made pay recordkeeping a requirement for all employers.
There’s also a law that covers exempt employees but it’s more flexible since exempt employees are paid above the minimum wage and aren’t entitled to overtime.
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How Does Salary Function for Exempt and Non-Exempt Employees?
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While there is a minimum wage set by law, there’s also a thin difference between exempt and non-exempt pay on paper.
As mentioned before, non-exempt employees make $684/week ($35,568/year) or less, while this is the minimum for exempt employees.
However, in some situations exempt can make more money than non-exempt employees.
How?
While seasoned exempt employees hold well-paid positions, entry-level exempt roles are just above the mentioned minimum pay.
So a non-exempt employee in a decent maintenance job where overtime hours are worked (and paid) can end up making more money in the long run. That’s where the advantage of being paid overtime lies and that’s something that exempt employees are missing out on.
Of course, there’s a whole question of the work-life balance which will mostly depend on you as an individual.
You’ll have to decide if you’re chasing the higher paycheck that includes benefits or a better work-life balance even if it means that you might earn less money in the long run.
The salary system functions the same for both non-exempt and exempt employees.
One sure thing in common is that both employees are paid a salary that can’t be anything less than what the law sets.
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Conclusion
There is a huge difference between exempt and non-exempt employees and it’s categorized differently in the law.
While an exempt employee might seem like a better option right from the start, it doesn’t always have to mean it is.
There are plenty of non-exempt employee opportunities that can lead to living a good work-life balanced life without holding a professional role.
Of course, both employment categories have their pros and cons and it’s up to you to decide on the one where you think you fit better.
