All You Need to Know About Exempt Employees in the US

4 of April, 2023

Exempt employees are a significant part of any business, and it’s important to understand the definition of an exempt employee in the US. If you’re an HR manager or a business owner, understanding the distinction between exempt and non-exempt employees can make all the difference when managing your workforce.

From wage-and-hour laws to tough compliance requirements, employers in the US must pay close attention to the rules and regulations when it comes to paying exempt employees and managing documents.

In this article, we’ll break down everything you need to know about exempt employees in the United States. We’ll cover what an exempt employee is, how they are classified, their associated benefits and risks, and more!

By familiarizing yourself with this information you can ensure compliance with your state laws when it comes to dealing with exempt employees. All without breaking a sweat. Let’s start!

Definition of an Exempt Employee in the US

An exempt employee is an individual who has been classified by their employer as being ineligible for certain types of payments and benefits, including overtime pay and time off. According to the law, the employer expects the exempt employee to work all hours necessary to complete the job assigned to them.

Typically, employers consider these employees “exempt” because they pay them a salary, rather than paying them hourly. They tend to be in positions of management or professional roles, which require a higher degree of training and skill. Examples of exempt employees would include executive and administrative personnel, IT professionals, doctors, architects and more.

The Fair Labor Standards Act (FLSA) outlines the criteria for determining who should be classified as an exempt employee in the United States. Generally speaking, for an employee to be considered exempt, they must be compensated at not less than $684 per week on a salary or fee basis; perform job duties that are primarily executive, administrative or professional; and perform their job duties under only general supervision.

Who Is Considered an Exempt Employee?

You might be wondering which employees the United States considers exempt. Thanks to the Fair Labor Standards Act (FLSA), employers now have a definition for exempt employees, so you can feel confident you’re making the right call when hiring and classifying employees.

Generally, to be considered an exempt employee, workers must fulfill three requirements:

• They must be paid a minimum salary of $684 per week ($35,568 per year)
• Workers must pass a duties test related to their job responsibilities
• They must work in executive, administrative, or professional capacities.

If an employee meets all three criteria, they are classified as an exempt employee and are not subject to overtime compensation and certain other wage protections that non-exempt workers receive.

It’s important to remember that some states have their own laws regarding wages and working conditions. So before classifying your employees as exempt, double check local state regulations.

Responsibilities of the Employer for Exempt Employees

Exempt employees have a lot of privileges, but employers also have some duties to uphold. Employers need to understand their responsibilities to ensure that they treat their exempt employees fairly.

Federal and State Laws

Employers must comply with both federal and relevant state laws when it comes to exempt employees. Employers should pay the employee’s full salary, regardless of hours worked, and should not deduct any amount from their salary even if they do not work for 40 hours a week.

Additionally, employers should ensure that exempt employees do not perform any job duties below the executive, administrative, or professional level to maintain their exemption status.

Compensation Packages

Exempt positions come with a specific type of compensation package as mandated by law. Employers must compensate exempt employees on a salary or fee basis, which means they should pay an agreed-upon amount for a specific time period, regardless of the number of hours worked by the employee during that period.

It’s important to note that employers cannot require an employee to work extra hours without additional compensation.

Time Keeping Records

For exempt employees, employers must maintain accurate records, including the amount paid, dates of any additional payments made, and other information related to the job category that justifies their exemption status.

Employers should also document any employee complaints regarding their pay or job classification as well as provide forms such as employment agreements detailing expectations and conditions surrounding the position.

By understanding their obligations, employers can make sure they are providing their exempt employees with the best working environment possible.

How to Determine Whether a Worker Is Exempt or Not

You might be wondering: how can I determine which of my employees are exempt? No need to worry—there’s a simple formula.

The defining criteria for an employee to be exempt is that they must fit into one or more of the following categories:

• Executive exemption – The worker must meet certain criteria including managing two or more employees and having the authority to hire and fire employees.
• Administrative exemption – The worker must meet certain criteria such as exercising independent discretion and judgment regarding management policies or business operations.
• Professional exemption – The worker must have advanced knowledge, either through experience or education, in a particular field. A professional may qualify as exempt if they make above $455 per week, are licensed in their profession, and exercise discretion in their field.
• Computer-related exemption – The worker must receive pay of at least $27.63 per hour for work related to computers, so long as the primary job duties involve computer systems analysis, programming, or software engineering.

If an employee fits into one of these categories, both federal and state laws consider them exempt from overtime. If they do not fit into one of these categories, they are not exempt from overtime pay and the employer should treat them like a non-exempt employee.

Conclusion

All in all, understanding the exemptions under the Fair Labor Standards Act is crucial. As an HR manager or business owner, it’s not only important to know the difference between exempt and nonexempt employees, but also the specific criteria that would classify a certain position to be either exempt or nonexempt.

This can help you protect your business from potential issues that may arise from misclassifying positions. With the help of HR software like Sesame, you can easily manage and monitor your employees to ensure that everyone is classified correctly based on their duties and responsibilities.

By taking the time to learn the definitions and criteria of exempt and nonexempt positions, you can easily comply with the laws and build a workplace culture that rewards hard work and dedication.