The Difference Between Exempt & Non-Exempt Employees

Many payroll providers don’t understand the ins and outs of determining whether employees are exempt or non-exempt. The most common rule of thumb is that hourly employees are non-exempt, salaried employees are exempt but this is not always the case.

Why is it so critical to make the distinction? For one reason, non-exempt employees are covered under the Fair Labor Standards Act (FLSA), which imposes requirements for overtime and other aspects of employment. Exempt employees are NOT subject to FLSA.
Employees are considered non-exempt unless they fall into one of the several specific categories as outlined below:

Administrative employees. Must make at least $455 per 40-hour work week. Their primary duties must consist of office or non-manual work directly related to the management policies or general business operations of the employer or the employer’s customers. Their job must require them to exercise discretion and independent judgment over significant matters.

Executive employees. Executive employees must make at least $455 per 40-hour work week. Their primary duties must consist of management of the enterprise in which the employee is employed or a recognized department or subdivision of that enterprise. They must regularly direct the work of two or more other employees. They must also have the authority to hire and fire, or have significant influence over the hiring and firing process.

Computer employees. Computer employees must make at least $455 per 40-hour work week or be paid at least $27.63 per hour. They must apply system analysis techniques and procedures including consulting with users to determine hardware, software, or system functional specifications and design, development, documentation, analysis, creation, testing, or modification of computer systems or programs.

High-dollar employees. Employees who make more than $100,000 per year are generally exempt.

Exempt professionals: The traditional “learned professions” are generally exempt. These include lawyers, doctors, dentists, teachers, architects, and clergy. Also included are registered nurses (but not LPNs), accountants (but not bookkeepers), engineers who have engineering degrees or the equivalent and perform work of the sort usually performed by licensed professional engineers, actuaries, scientists (but not technicians), pharmacists, and other employees who perform work requiring “advanced knowledge” similar to that historically associated with the traditional learned professions.

Creative professionals. The exemption for creative professionals includes employees whose work requires invention, imagination, originality, or talent. Creative professionals contribute a unique interpretation or analysis. This includes actors, musicians, composers, writers, cartoonists and some journalists.

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Davis & Hodgdon Associates has been assisting individuals and businesses in the Burlington Vermont Metro area for more than 20 years. If you have any questions or concerns please feel free to call 802.878.1963 or email [email protected].

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