Common Clauses

What is Exempt and Non-Exempt Employment?

Nov 8, 2023

Your employment agreement will likely have a sentence early on that says “this position is [non-]exempt” and you’ve probably glazed over it as standard language. Would you be surprised to hear that we’ve reviewed employment contracts where the employee was mis-classified? Let’s deep dive into the big consequences this little term can have on you and your employer.

What are you Exempt or Non-Exempt from?

At the foundation is the Fair Labor Standards Act (FLSA), dating way back to 1938. The FLSA establishes the federal minimum wage, hours in a work week, overtime pay, child labor protections, and other regulations. Roles that are Non-Exempt must follow all the regulations of the FLSA, whereas Exempt roles do not. That doesn’t mean Exempt employees are a free-for-all, as the company must still follow all federal and state laws covering all workers.

There are very specific rules for a role to qualify as Non-Exempt and hefty consequences when employees are misclassified. Depending on the state, employers can be fined up to upwards of $25,000 per violation in addition to backpay of unpaid wages.

What are Non-Exempt Employees entitled to?

The most critical aspect of Non-Exempt employment is overtime pay. The FLSA requires time and a half regular pay for each hour over 40 in a workweek. The FLSA also sets a federal minimum wage of $7.25, though employers must also abide by the often higher minimum wage of each state.

What classifies an employee as Exempt?

The Department of Labor (DOL) provides this list as guidance in addition to the minimum salary of $684 per week:

  1. Executive Exemption: You must direct 2 or more full-time employees and have significant ability to hire or fire employees.

  2. Administrative Exemption: You must be in office or non-manual work related to the management of company operations and need to exercise independent judgment on important matters.

  3. Professional Exemption: You must in an advanced field with advanced learning credentials, or be a creative professional with recognized talent in the field.

  4. Computer Employee Exemption: You must be a programmer or systems analyst with the primary duty to design and develop programs or systems.

  5. Outside Sales Exemption: You are regularly away from your employer’s place of business to make sales with customers.

  6. Highly Compensated Employees: You perform office or non-manual work with a total annual compensation of at least $107,432 and are an executive, administrative, or professional employee.

The DOL also specifically call out "Blue-Collar" Workers in physical labor roles and First Responders (Police, Fire Fighters, Paramedics) as two categories that are always Non-Exempt, regardless of pay.

We recommend taking a look back at your Offer Letter and scan for that Exempt or Non-Exempt classification. Use the information above to see why your role falls under one category vs. the other. If there’s a chance you’re mis-classified, you’re entitled to backpay and other damages. If you’re in a leadership role, consider if all your team members are classified correctly. Fines are typically lower on accidental as opposed to willful misclassifications.

For advocacy and beyond,
The Ask Ginkgo Team

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