What Does “Exempt” vs. “Non-Exempt” Mean?

The terms exempt and non-exempt primarily refer to whether an employee is exempt from overtime pay and certain wage-and-hour protections under labor laws such as the Fair Labor Standards Act (FLSA) and applicable state laws.

Non-Exempt Employees

Non-exempt employees are entitled to overtime pay and must be paid at least the minimum wage.

Key characteristics:

•Eligible for overtime (typically 1.5× pay for hours over 40 per week)

•Paid hourly or sometimes salaried (salary alone does not make someone exempt)

•Time worked must be accurately tracked

•Protected by most wage-and-hour rules

Common roles:

Customer service representatives, administrative staff, retail employees, warehouse workers, technicians

Exempt Employees

Exempt employees are not eligible for overtime pay if they meet specific legal requirements.

Key characteristics:

•Paid on a salary basis

•Meet a minimum salary threshold

•Perform specific job duties defined by law

•Not entitled to overtime pay

Common roles:

Managers, executives, certain professionals (lawyers, doctors), administrative leaders, specialized IT professionals

The Three Tests for Exempt Classification

To classify an employee as exempt, all three tests must be met:

1. Salary Basis Test

The employee must receive a fixed salary that does not fluctuate based on hours worked.

2. Salary Level Test

The employee must earn at least the minimum salary required by law, which may vary by jurisdiction and can change over time.

3. Duties Test

The employee’s primary job duties must fall into an exempt category, such as: •Executive

•Administrative

•Professional

•Certain computer or outside sales roles

Failing any one of these tests means the employee must be classified as non-exempt.

Why Proper Classification Matters

Legal Compliance

Misclassification is one of the most common employment law violations. Consequences may include: •Back pay for unpaid overtime

•Penalties and interest

•Government audits

•Class-action lawsuits

HR Strategy

Correct classification helps: •Control labor costs

•Set clear expectations around work hours

•Support accurate workforce planning

•Avoid burnout and morale issues

Employee Relations

Employees who feel misclassified may:

•Lose trust in leadership

•Experience wage dissatisfaction

•File complaints or legal claims

Transparency and fairness in classification strengthen employee engagement and retention. Common Misclassification Mistakes •Assuming salaried = exempt

•Giving a managerial title without managerial duties

•Not updating classifications after role changes

•Ignoring state-specific labor laws

•Failing to track hours for non-exempt salaried employees

Best Practices for Employers

•Conduct regular job classification audits

•Review actual job duties—not job titles

•Stay updated on federal and state labor law changes

•Train managers on overtime and timekeeping rules

•Document classification decisions clearly

When in doubt, consult an HR professional or employment law expert.

Final Thoughts

Understanding the difference between exempt and non-exempt employees isn’t just about compliance—it’s about building a fair, transparent, and sustainable workplace. Proper classification protects your business, supports your HR strategy, and promotes positive employee relations. If you’re unsure whether your employees are classified correctly, now is the time to review—before a problem arises.