Exempt and non-exempt. You probably have heard of these two terms. Do you know the differences between the two? If you’re a little unsure, keep reading. We’ve got you covered.

What’s the difference between exempt and non-exempt employees?

In a nutshell, exempt employees are not eligible to receive overtime pay. And non-exempt are eligible. Meaning any time after 40 hours worked by a non-exempt employee earns them overtime.

In the simplest terms, non-exempt employees are paid hourly and are eligible to receive overtime pay when they work in excess of 40 hours during the workweek.

Exempt employees are exempt from the requirements defined by the FLSA (Fair Labor Standards Act). Exempt level employees are paid a salary. In order for a job to be classified as exempt, the job and responsibility must pass something called a “duties test.” Employees that qualify as exempt typically have job duties that are labeled as executive, professional, or administrative.

Expected Fair Labor Standards Act Changes

In 2016, there were a number of changes made about how we compensate and categorize exempt and non-exempt level workers. These changes are expected to impact over half of the U.S. workforce. Here’s 2 of the big takeaways:

The salary minimum threshold for exempt workers will increase.

Although the exact salary minimum isn’t yet confirmed, the Department of Labor has hinted at increasing the minimum from $23,660 to $50,440. This change will result in a number of challenges for small businesses, non-profits, and companies in industries like retail and hospitality who compensate managers at the salary minimum requirement to qualify for exempt level status. Once the change goes into effect, exempt managers will need to have their pay increased to the new threshold or begin receiving overtime for working over 40 hours.

The definition of primary duty is changing.

The term “primary duty” is defined as the “principal, main, major, or most important duty that the employee performs.” The distinction of primary duty is important because in order for an employee to be considered exempt, their primary duty must be central to management job responsibilities.

4 Misconceptions About Exempt and Non-Exempt Status

Regardless of how the FLSA changes in 2016, there are 4 common misconceptions about how to manage exempt and non-exempt employees:

• The use of vacation and time off. An employee that qualifies as exempt may not need to use their PTO if they get sick or work a half day. The PTO and vacation policy should be outlined in the employee handbook. If you need any help creating a PTO policy for your business, HR employee handbook templates are provided by through the Decisely OnDemand HR Support Center along with tips for implementation.
• Exempt employees’ pay can be docked. If an exempt employee has used all of their vacation time, sick time, or any other paid time off, the FLSA regulation does allow docking of exempt employee pay for full day absences. One important thing to remember is that lack of office presence does not mean lack of productivity, meaning an employee could easily be taking calls or answering emails from home.
• Exempt level employees’ hours worked can be tracked. It’s common practice for employers to ask employees who receive a salary to record their hours of work. This is especially important for employers to do now that the FLSA is changing. Once the salary threshold is increased, employers will need to weigh the expense of increasing an exempt level employee to the much higher salary threshold minimum or paying them overtime for hours over 40 worked.
• Non-exempt employees can work off the clock. Because non-exempt workers are paid and compensated on an hourly basis, they cannot work outside of “work” hours. Rather, non-exempt employees should track their hours throughout their specified shifts.

The key here is that your employees know how they are classified and what that means for their work schedules. So long as you stay up to date, so can your employees.