Exempt Employee

One who is exempt from any overtime pay or minimum wage requirements (or both)

Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets.

What is an Exempt Employee?

An exempt employee is an individual who is exempt from any overtime pay or minimum wage requirements (or both). Exempt employees fall into a special category due to their unique roles and responsibilities.

Exempt Employee

The exemption is generally found in U.S. labor laws and other types of legal systems in countries around the world. In the U.S., the legislation is called the Fair Labor Standards Act (FLSA). Its primary goal was to create a federal standard for establishing how wages and hours were to be established for private and public employers.

Summary

  • An exempt employee is an individual who is exempt from any overtime pay or minimum wage requirements.
  • This exemption is generally found in American labor laws and is called the Fair Labor Standards Act (FLSA).
  • FLSA regulations are accompanied by local and state regulations that complement these rules and create different guidelines for employees.

Examples of Exempt Employees

  • Executive
  • Professional
  • Administrative
  • Tech-related
  • Sales (Outside)

FLSA Standards and Exemptions

In understanding why certain employees are considered exempt employees under the FLSA, it is important to understand what the legislation does and why it is important. In addition to setting wage and hour standards across sectors, the FLSA sets a minimum wage, overtime pay rate, and the rules regarding tipped employees.

For government employees, it also provides rules and regulations for law enforcement, volunteer services, and compensatory time off (if no overtime is to be paid). Often, FLSA regulations are accompanied by local and state regulations that complement the rules and create different guidelines for employees.

The FLSA also sets standards for what can constitute a wage deduction and how recordkeeping should be approached. However, not under this piece of legislation, are rules requiring rest periods, vacation pay, or severance pay.

Exemptions for Overtime Pay: Requirements in the United States

The five examples of exempt employees listed above can be completely exempt from overtime pay requirements if the following criteria can be met.

  1. The individual must be paid a salary and not on an hourly basis.
  2. They must earn a minimum of $684 per week ($35,568 annually), and they must be paid a full salary for any week they are present at work (no volunteer work can be included).

If the above requirements are met, an employer can abstain from paying an individual employee overtime pay. At the time of hiring or during a meeting with their manager, however, an employee can negotiate some type of overtime throughout the salary negotiation/renegotiation process.

Taxation and Exempt Employees: Is There a Difference?

Under the U.S. Tax Code, all types of pay are considered earned income. In other countries, this may differ; however, taxation rules are applied equally across exempt and non-exempt employees.

Exempt and non-exempt employees would fall into the same tax brackets depending solely on the amount of money earned, regardless of the employment type.

Employee Rights and Exempt vs. Non-Exempt Employees

Exempt employees generally do not fall under any of the protections outlined in the FLSA. However, non-exempt employees generally are afforded a multitude of rights under the legislation that protects workers by dictating things like overtime and fair pay.

It does not mean that exempt employees are not protected under the law against unfair employment practices. Exempt employees still fall under many federal, state, and local guidelines that outline how an individual is to be treated in the workplace. Their exempt status does not preclude them from being treated with respect to their basic personal rights.

Additional Resources

CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

0 search results for ‘