Exempt vs. Non-Exempt Employee Status: The Difference and Why It Matters

Updated: Jul 30, 2021

Understanding the difference between an exempt and non-exempt employee is confusing but necessary. Incorrectly switching these different kinds of employees is a costly mistake to make. Who wants to pay extra fees because of the Fair Labor Standards Act (FLSA)?

If you've had to pay these fees in the past, you understand how quickly that money can stack up. If you haven't had to pay those fees, work to avoid them all now.

To learn more about how to differentiate exempt and non-exempt employees, keep reading. We can help you make sense of this very important distinction in employee status.

Exempt Employee Status

As the name implies, exempt employees are exempt from overtime payments. Exempt employees fall into the executive, administrative, professional, some “computer” employees, outside sales, and highly compensated employment classifications, as determined by the Department of Labor. Determining, the true classification of an exempt employee requires a review of the job duties test provided by the Department of Labor.

Exempt employees must make at least $684 per week on a salary basis. It is important to remember position titles do not automatically qualify a position as exempt.

Non-Exempt Employee Status

As with exempt employees, the name "non-exempt" is extremely indicative of the fact that these employees are not exempt from overtime payments. To be clearer, an employee with a non-exempt status is entitled to overtime payments.

Non-exempt employees must be paid minimum wage or more and at least time-and-a-half for every hour that they work beyond 40 hours a workweek.

Understanding the Differences

Now that you understand the basics of each employee status, we will go a little deeper to further clarify the difference between exempt and non-exempt employees.

As you go through these differences, you should keep in mind what your business needs are and the types of skill required to successfully execute the work. This will help you identify staffing needs and create job descriptions to help properly classify the positions.

Let's get started.

Tax Liability

When it comes to taxes, there isn't any difference between an exempt and a non-exempt employee. No matter how the employee is paid, the money earned is still considered taxable. Taxes are only impacted by the tax bracket the employee falls under. Their exempt or non-exempt status does not impact the tax bracket.


Exempt employees are expected to work until their tasks are complete. Whether that takes 35 hours or 55 hours, that employees’ compensation will not be impacted and will remain the same. In other words, exempt employees are paid to do a job rather than work for a certain amount of time.

On the other hand, non-exempt employees are entitled to be paid one and a half times each hour that exceeds 40 hours of work within one workweek. They are compensated for the time worked and not for the work produced.

Because of this difference, most businesses prefer having exempt employees and often mistakenly misclassify them. This mistake can lead to costly penalties. Those companies that do have non-exempt employees work to make sure that those employees don't exceed 40 hours of work per week.

Workers' Rights and Benefits

When it comes to workers' rights, all employees must be treated the same. The only regulation that draws a difference between exempt and non-exempt employees is the FLSA.

Both exempt and non-exempt employees have the right to a safe and healthy workplace and equal employment opportunities as well as those laws held under the Family and Medical Leave Act and the numerous child labor declarations.

To avoid breaking any of these common laws, be sure to treat all employees equitably.


In general, all employees may be eligible to receive unemployment benefits as a result of job loss or reduced employment However, specific benefits may change from state to state. Having a basic knowledge of your state’s unemployment laws is important. Check your state's Department of Labor website.

Getting clarity around unemployment guidelines can save you frustration in the future. It’s better to review them now and know where to get your questions answered before you need to.

Choosing the Right Employee Status

As previously noted, selecting the right employee status for your team members is essential. It ensures protection from legal backlash and penalties imposed by the Department of Labor. More importantly, proper classification of your positions helps to make create the staffing structure your organization needs to effectively and efficiently run the business.

You have to decide what works best for your business needs.

More HR Help

The world of human resources can be difficult to understand. Even beyond employee status, we find that our customers and other business-savvy people such as yourself tend to have trouble understanding how to navigate the world of human resources and the laws and policies that come with it.

If you've found that HR is not your strong suit (or you'd just prefer professionals to take care of those responsibilities), you can count on us. With a variety of services - ranging from employee satisfaction to HR compliance - we have the tools to help your business make sense of everything involving human resources.

Go ahead and contact us today. The sooner we can talk to you about your needs, the sooner you can get the help you need.