Exempt vs Non-Exempt Employee Debate: What You Need to Know

First, it is important to go through some of the legal and financial implications of having exempt vs non-exempt employees. A few important points to keep in mind include:

• Business owners are required to properly classify all of their employees as either exempt or non-exempt employees. That way, they can avoid some of the legal ramifications under the Fair Labor Standards Act, or FLSA.

• In general, exempt employees are required to earn a minimum of $55 per week. They are paid the same amount of money regardless of the hours worked, and they generally perform administrative, professional, or executive duties.

• In contrast, non-exempt employees generally have no limitations or requirements on the number of hours they can work every week, but if they work more than 40 hours in a week, they are required to receive overtime pay.

As a small business owner, you are required to clearly specify whether employees fall into the exempt or non-exempt category. The easiest way to do this is through job descriptions. The financial and legal ramifications of misclassifying employees can be costly, and the penalties can be retroactive, going all the way back to the original date that the employee was hired.

If you misclassify your employees as non-exempt, there are several examples of penalties you could face. They include:

• You might face individual lawsuits or class action lawsuits brought against the company.

• You could end up getting audited by the IRS.You might have to pay overtime and back wages.

• You may also be ordered to compensate the employees for lost benefits.

• You might also have to pay interest on any penalties, fines, or extra compensation that is owed to the employee.

• You could face punitive damages as well.

For these reasons, it is important to make sure you classify all of your employees correctly.

How to Determine if an Employee is Exempt or Non-Exempt

If you are curious as to whether an employee is exempt or non-exempt, there are a few ways to answer this question. There are three tests to follow:

• Salary Level Test: The first option is to perform something called a salary level test. If an employee is earning more than $35,568 per year, which is the equivalent of $684 per week, they are qualified as exempt but are not required or guaranteed to be exempt.

• Salary Basis Test: Another option is the salary basis test. If an employee receives a guaranteed minimum compensation, regardless of the number of hours he or she actually works, that employee could qualify to be exempt, but is not guaranteed or required to be exempt.

• Duties Test: Finally, if an employee meets the two tests above, the employee must also follow the duties test. If the employee supervises two or more other employees as a part of his or her regular job, the employee performs duties that require specialized education, and the employee performs support operations for matters that require a significant amount of judgment and discretion, then the employee may pass the duties test.

If the employee meets all of the standards above, the employee could be classified as exempt. It is still important for the business to clearly specify whether an employee is exempt or non-exempt.

The Impact of Exempt vs Non-Exempt Classification on Overtime and Benefits

There is a significant impact on classifying an employee as exempt or non-exempt. For example, if an employee is categorized as exempt, then the employee is not entitled to overtime pay. Therefore, you can demand a certain level of performance from the employee while keeping your overhead expenses the same; however, an employee who is categorized as exempt will generally cost more because they will use their discretion and judgment when performing their job duties, in addition to coming with specialized education.

On the other hand, exempt employees are generally also entitled to benefits. Therefore, while you might not be expected to provide them with overtime pay, you might be expected to provide them with retirement packages, health insurance, and paid time off. While you might not be required to do so, it is important to take a look at what the rest of the market is doing. If you are not willing to provide the employee with those benefits, you might have a difficult time hiring someone to do that job.

Keep in mind that if you hire a non-exempt employee, you will be required to pay them overtime for each hour worked over 40 hours per week. You will need to closely monitor the number of hours worked and provide them with a 50 percent pay increase for each hour over 40. That is where HR software for exempt vs non-exempt employee classification is helpful.

Reach Out To Dental & Medical Counsel With Any Questions About Employee Classification

HR software for compliance with exempt vs non-exempt employee regulations is beneficial. It is also important for you to reach out to a professional who can help you clearly apply the duties test for exempt employees. We are Dental & Medical Counsel, and it would be our pleasure to help you conduct regular reviews related to your employee classification. Contact us today to speak to a member of our team.