What does “exempt” and “non-exempt” mean?
July 9th, 2012
Perhaps you’re an HR manager new to hiring personnel, or a business owner trying to navigate the world of compliance when it comes to wage and hours. You’ve likely come across the terms “exempt” and “non-exempt,” as they are required by the Fair Labor Standards Act (FLSA)… but do you know exactly what they mean?
The FLSA requires that employers classify employees as either exempt or non-exempt. FLSA rules and regulations apply to non-exempt employees. They do not apply to exempt employees. What are the differences?
Minimum wage, overtime, and other rights/regulations that fall under FLSA are not applicable to employees who are “exempt.” Exempt employees must receive a salary rather than an hourly wage for their position in order to be classified as “exempt.”
Since non-exempt employees are not exempt from the FLSA requirements, employers must pay non-exempt employees the federal minimum wage for each hour worked. They must also be paid overtime for hours worked beyond 40 hours each work week.
How does this effect taxes?
There is no difference between the way that exempt and non-exempt employees are taxed. All pay earned, is “earned income” and therefore can be taxed. Although employees will fall into different tax brackets depending on how much income is earned, the same regulations surrounding taxes apply to each group.
Is that all?
That’s not all. Laws and regulations surrounding HR can be extremely complex, and in this case determining on your own whether or not to classify your employee as exempt or non-exempt can lead to implications down the line, including benefits, workers’ rights, and unemployment. A second opinion is always a good idea!
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