Non-Exempt Employee

A worker who is entitled to overtime pay of at least 1.5 times their regular pay rate

What is a Non-Exempt Employee?

A non-exempt employee refers to a worker who is entitled to overtime pay of at least 1.5 times their regular pay rate, in accordance with the U.S. Fair Labor Standards Act. As opposed to exempt employees, non-exempt employees can be paid an hourly wage and must be paid at least the federal minimum wage.

 

Non-Exempt Employee

 

Summary

  • A non-exempt employee refers to an employee who is entitled to overtime pay of at least 1.5x their normal wage rate.
  • Non-exempt employees tend to be blue-collar workers that are usually paid on an hourly basis.
  • Some of the advantages of non-exempt employees are related to the flexibility they offer for wage structures and job duties, whereas exempt employees are usually in managerial or executive positions and are paid on a salary basis.

 

Non-Exempt Employees vs. Exempt Employees

There are several differences between non-exempt and exempt employee status:

The primary difference between non-exempt and exempt employees concerns the nature of overtime pay. While non-exempt employees must be paid for working extra hours, exempt employees are paid on a salaried basis regardless of how much they work.

Additional differences come from the regulations surrounding wages. Non-exempt employees must be paid at least the federal minimum wage, whereas exempt employees must make at least $684/week or $35,568/year.

It shows that the wage floor for exempt employees is higher than that for non-exempt employees. $684/week for a 40-hour workweek amounts to approximately $17.10 per hour (before taxes), which is considerably higher than the federal minimum wage of $7.25 per hour.

 

Advantages of Non-Exempt Employees

 

1. Flexibility in the wage structure

Unlike exempt employees, non-exempt employees can be paid either on an hourly or a salaried basis – offering employers higher flexibility in the type of wage structure. Furthermore, non-exempt employees that are being paid minimum wage cost lesser to hire than their exempt counterparts.

 

2. Incentive to work

By guaranteeing employees minimum overtime pay of 1.5x their hourly wage, employers can motivate them to work harder towards achieving the company’s goals. On the other hand, exempt employees are less likely to be as motivated to work after-hours since they get paid a fixed amount.

 

3. Flexibility in roles and job duties

Non-exempt employees can work in roles ranging from administrative to managerial. It provides the employer and the employee more flexibility with regards to work, increasing the potential for cross-department work.

 

Disadvantages of Non-Exempt Employees

Despite all the advantages, the non-exempt employee structure comes with shortcomings for employers:

 

1. Overtime pay

Employers must compensate non-exempt employees for working after hours, which can be costly with a large number of non-exempt employees. On the other hand, exempt employees are not paid overtime and must still meet the expectations the company set out for them.

From an employer’s perspective, exempt employees offer a major advantage of eliminating overtime pay. However, non-exempt employees are also subject to lower wages, which translates into lower costs for employers.

 

How Do Employees Qualify for Exemption?

Certain conditions must be fulfilled for an employee to take the exempt status. Apart from the specific regulations for employees with STEM or sales duties, the foremost condition is that the employee must fit into one of three broad categories:

  1. Executive: A managerial or authoritative role with direct supervision over employees
  2. Professional: A job that requires expertise or scientific knowledge of a particular field
  3. Administrative: A role concerning office and non-manual administrative work, related to running business activities.

 

Also, the employees must pass the “Salary Test” and the “Duties Test”:

 

Salary Test

The salary test verifies exemption based on how employees are compensated.

  • Employees must receive at least $684/week or $35,568/ year.
  • “Highly compensated” exempt employees must be paid at least $107,432/year.

 

Duties Test

The duties test involves an examination of the employee’s role and job description to ensure that the role fits within one of the three broad categories.

 

With the above criteria in mind, it is safe to say that exempt employees tend to receive higher wages than their non-exempt counterparts. Moreover, exempt employees are usually managerial or executive employees who play important roles in decision making and operations. On the other hand, non-exempt employees are usually involved in manual labor and other blue-collar activities.

 

More Resources

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Earned Income
  • National Average Wage Index (NAWI)
  • Universal Basic Income (UBI)
  • Labor Market

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