When hiring employees for your business, you may choose to classify them as either an exempt employee or a non-exempt employee. Knowing the difference between exempt and non-exempt employees is crucial for your business to stay compliant. Classifying your employees correctly or incorrectly could have a massive impact on your payroll costs as well.
What is the difference between the two?
While there are a few differences between classifying your employee as exempt or non-exempt, the biggest difference comes down to how you pay them. Following guidelines set by the Fair Labor Standard Act, exempt employees are paid a salary of at least a certain amount that is set by state and federal governments and are not eligible for overtime pay. On the other hand, non-exempt employees are paid an hourly or salary rate that at least meets the minimum wage. These employees must be paid overtime for any hours worked over 40 hours in any 7 day period.
Exempt employees, or salaried employees, are paid a set wage whether they work 30 hours, 40 hours, or 50 hours in a week. They are not eligible to receive overtime pay for working more than 40 hours in a 7 day period.
To be eligible for consideration as exempt from overtime pay, employees must:
- Receive a minimum salary set by state and federal governments.
- Federally, the minimum salary for 2023 will be $684 per week. For the state of Maine, the minimum salary will be $796.17 per week.
- Work in a specific job classification.
- Meet specific duties tests.
Job classification and duties test set by the Department of Labor state that exempt employees must be “white collar” and perform duties within one of the following categories:
Non-exempt employees are paid an hourly or salary rate of any amount greater than state and federal minimum wage. These employees must be paid overtime of 1.5 times their rate for any hours worked over 40 hours in a given 7 day period.
Non-exempt employees have less restrictions around the type of work and duties they perform. Non-exempt employees:
- Only need to be paid above the minimum wage.
- Must be paid overtime for hours worked over 40 hours.
- Can work any job type or perform any duties.
How should I classify my employees?
Deciding on how to classify your employees may not be an easy one. If you have employees that are working more than 40 hours and are receiving overtime pay weekly, making them an exempt employee may be the right move. On the other hand, if you are a business that has dramatic seasonal swings, for example, paying overtime to your employees for the busy season may be more beneficial than paying a higher salary rate to an exempt employee year round.
Take a look at your scenario to see which option might work best for your business. If you are paying out too much overtime to your exempt employees, please read our strategies for reducing overtime article.