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Exempt vs Non-Exempt Employees? That Is the Question.

Overtime regulation by the Department of Labor is one of the most watched compliance items by employers, and for good reason—misclassifying employees or underpaying overtime can have enormous financial consequences for a business. With several changes were announced in 2021 and likely more on the horizon in 2021, overtime exemptions are an important area to understand and monitor.

If you’re struggling to understand general overtime rules and don’t know on which areas to stay updated, don’t worry—we have you covered. The place to begin is to determine whether you are properly classifying your employees. All employers must classify jobs as either exempt or non-exempt. Misclassifying employees can cause confusion for both you and your employee, while not fully understand the difference between the two categories could end up costing you a lot of money.

Fair Labor Standards Act

Update from the Department of Labor

In 2020 the Department of Labor (DOL) updated the new federal overtime provisions of the Fair Labor Standards Act (FLSA). The rules updates included:

  • “White collar” exemptions increase from $455/week to $684/week.
  • The total annual compensation requirement for highly compensated employees increases from $100,000 to $107,432.
  • Employers can use bonuses and incentive pay (including commissions) to satisfy up to 10% of the standard salary level.

The Fair Labor Standards Act (FLSA) mandates that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay for working more than 40 hours per week. However, the FLSA provides an exemption from both minimum wage and overtime pay for individuals who are employed as bona fide executive, administrative, professional, outside sales, certain highly compensated employees and certain computer employees. There are also exemptions for specific types of workers in unique industries.

Exempt Employees vs. Non-Exempt Employees

Generally, exempt employees are those who are paid an annual salary and not subject to overtime hours or time tracking. To qualify for exemption, employees must typically meet the following three tests:

  1. Is paid $35,568 per year (or $684 per week).
  2. Is paid on a salary basis.
  3. Performs exempt job duties. Exempt employees generally perform relatively high-level duties regardless of job title. These employees are referred to as white-collar workers because they are highly skilled and formally trained professionals who typically perform job duties in an office setting. Many white collar workers either provide services to clients or businesses, corporations or government agencies.

Note: Job titles do not determine exempt status. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the DOL’s regulations. Check out the DOL’s Fair Pay Fact Sheets for more detailed information about the specific duties that must be performed in order to meet the requirements of the white collar exemptions.

Non-Exempt Employees

Non-exempt employees are generally paid by the hour, rather than on a salary basis, and those working above 40 hours per week are entitled to time and one-half of their regular pay rate for each hour of overtime worked.

Use our calculator to calculate the overtime pay for your employees.

The pandemic meant that EEO-1 Component 1 reporting for 2019 and 2020 has been delayed till March 31, 2020. Component 2 reporting is for the time being not-required—2017 and 2018 were the last years to be reported. However, we’ll keep you up to date when any new information becomes available.

When it is time to report, properly classifying employees and accurately capturing their time is essential to meeting compliance requirements. Paycor’s Time and Attendance software offers employers multiple forms of time-entry (mobile, web, kiosk, clock) so employees can clock in and out from anywhere, anytime. And with mobile punching, employers can verify locations and set precise coordinates to ensure employees are punching in and out from the desired work location. With one location to track and monitor hours worked, employers have instant access to the data they need to accurately report Component 2 data on the EEO-1 survey.

As many companies have learned the hard way, improperly classifying employees as exempt can lead to serious fines from the Department of Labor. Don’t make the same mistake. Paycor’s HR Support Center On-Demand gives you access to a knowledgebase of HR tips, alerts, checklists and templates to help you reduce your risk of non-compliance. In addition, HR Support Center On-Demand lets you call or email HR professionals who can guide you and answer your specific questions.

Reach out to us to learn more.

Paycor is not a legal, tax, benefit, accounting or investment advisor. All communication from Paycor should be confirmed by your company’s legal, tax, benefit, accounting or investment advisor before making any decisions.


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