If you have determined that you are hiring an employee, the second determination to make is the exemption status of your employee. Remember, this determination only applies to employees, not independent contractors.
Laws govern the employee exemption status under the Fair Labor Standards Act (FLSA). Under the FLSA, employees are provided with protections ensuring they are paid the fair minimum wage, appropriate overtime, maintain record keeping, and uphold child employment standards. FLSA also establishes the exemptions status of exempt or non-exempt.
How to Determine Exempt vs. Non-Exempt
The Department of Labor provides employers with three tests to determine the exemption status of an employee. These tests measure an employee's duties, the span of independent judgment over their work, and salary.
- The salary base test - To satisfy the salary base test, an employee must be paid a set salary amount that does not change.
- Salary level test - To satisfy the salary level test, an employee’s salary must be above the defined salary threshold. The salary threshold is $684 per week and $35,568 per year. This condition means that an employee paid less than $684 in a workweek must be paid overtime for any hours worked over 40.
- The duties test - To satisfy the duties test, an employee’s primary job duties must meet the requirements of the regulations and fall into one of these categories:
- Outside Sales
If an employee’s salary and job duties satisfy these three tests, they are exempt from being paid overtime and considered an exempt employee. If the employee’s salary and job duties do not satisfy all three tests, they are considered non-exempt and must be paid overtime.
The FLSA established the exempt employee status in 1938. Since then, the law has been updated numerous times, giving us what we have today. An exempt employee is an employee who satisfies the three exemption tests and therefore is exempted from the rules in the FLSA that require overtime pay.
So, what does it mean if your employee is non-exempt? Non-exempt employees do not satisfy the three exemption tests and are protected by the FLSA.
- Non-exempt employees must be paid at least the minimum wage for every hour of work.
- Non-exempt employees must receive overtime pay for any hours worked over 40 per week at a rate no less than one and a half times their regular pay rate.
Taking the time to evaluate the exemption status of each of your new hires and employees is worthwhile. You will have peace of mind knowing that your employees are being paid fairly and legally.