HR Tip of the Week

Posted on  |  Compliance

Exempt, Non-Exempt, and Salaried: What You Don’t Know Could Cost You

Understanding the differences between non-exempt, exempt, and salaried non-exempt employees is essential to complying with the Fair Labor Standards Act (FLSA). Below are the key differences between these classifications:

Non-exempt employees:

Under the FLSA, non-exempt employees must be paid at least the minimum wage for each hour worked and overtime (1.5 times the employee's regular rate of pay) whenever they work more than 40 hours in a workweek. Your state may require overtime in additional circumstances. Most non-exempt employees are paid on an hourly basis. However, employers may pay non-exempt employees on a salary basis, provided the employee's pay for each hour of work meets or exceeds the minimum wage and the employee is paid overtime whenever he or she works more than 40 hours in a workweek. Most employees are classified as non-exempt.

Exempt employees:

To be classified as exempt, an employee must generally:

  • Be paid on a salary basis;
  • Be paid at least $455 per week for the administrative, professional, and executive exemptions (subject to change if new overtime rules go into effect);
  • Receive their full salary in any workweek in which they perform work; and
  • Meet certain duties tests. Each type of exemption has its own set of primary duties that must be performed in order for the employee to qualify for the exemption.

Exempt employees aren't entitled to minimum wage or overtime. Before classifying an employee as exempt, carefully review the tests for each exemption.

Salaried non-exempt employees:

While employers sometimes use the terms "salaried" and "exempt" interchangeably, not all employees who are paid a salary are exempt. As mentioned above, employers can pay non-exempt employees on a salary basis as long as the employee is paid at least the minimum wage for all hours worked and overtime when he or she works over 40 hours in a workweek.

Under the FLSA, calculating a salaried non-exempt employee's regular rate of pay, for overtime purposes, depends on the number of hours the employer and employee understand that the salary is intended to cover, provided the employee is reasonably expected to work that number of hours. For example, if the employer and employee understand the salary to cover 45 hours, then the employer may calculate the regular rate of pay by dividing the weekly salary by 45 hours. Some states have different rules. For example, California limits employers to dividing the weekly salary by a maximum of 40 hours when calculating the regular rate of pay for salaried non-exempt employees.


Some of the most common FLSA violations involve overtime and misclassification. Make sure your company is calculating and paying overtime in accordance with the FLSA (and your state law) and that you apply tests for exemption correctly.

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