There are numerous ways to classify the workforce depending on different aspects, such as state legislation, working hours, payment methods, etc.
Out of these, exempt vs. non-exempt is the most vague and general.
Knowing the definitions and understanding the differences between exempt and non-exempt is essential for:
Please keep reading this article to learn how to treat your employees fairly, follow the law, and protect your business.
TABLE OF CONTENT
Employees qualify as exempt when FLSA provisions on overtime pay, time tracking, and minimum guaranteed wage do not cover their positions within the organization.
In a nutshell, to qualify as exempt, your employees must meet the following three conditions simultaneously:
Exempt employees, also known as white-collar workers, are highly skilled professionals with executive, administrative, or outside sales jobs (teachers, doctors, lawyers). They usually do not track their hours and have more flexible schedules.
Hiring exempt employees has numerous benefits for companies and workers, as they have better skill sets, responsibilities, and decision-making authority.
Reduced labor costs
As an employer, you can benefit from significant labor cost savings as you must not pay overtime to your exempt workforce, regardless of how many hours they work per week.
Higher skilled workforce
The exempt staff consists of highly educated and skilled experts. Exempt employees are an excellent asset for your company, as they can produce better work quality and achieve goals faster.
Job commitment
As their schedules are more flexible, exempt employees have a better work-life balance. As a result, they are highly committed and invested in their roles, contributing to the overall success of your organization.
High levels of productivity
Due to their expertise, you can assign more complex tasks and responsibilities to your exempt employees.
Being trusted and having autonomy in problem-solving and decision-making makes your exempt workforce more creative and productive.
While exempt employment has benefits, there are also disadvantages to consider.
Higher salary costs
If you want to attract and retain candidates with great expertise, you must pay them a higher salary.
Burnout
Since you are not legally required to pay overtime, you may overwork your exempt employees, especially during busy periods, leading to burnout and negatively affecting their work-life balance and productivity.
Risks of misclassification
Classifying your exempt workforce is more complex than non-exempt staff, as they are subject to different labor law protections. Misclassifying your exempt employees can have significant legal and financial consequences for your business.
Non-exempt workers are employees working under the protection of the Fair Labor Standards Act (FLSA).
The FLSA ensures that non-exempt employees earn:
Non-exempt employees work under the direct supervision of a higher-up and do not influence management decisions.
Usually, non-exempt employees are manual laborers performing repetitive tasks involving physical effort. They work in different industries, such as construction, maintenance, assembly lines, and manufacturing; they receive an hourly rate.
If your staff consists of a non-exempt or hybrid workforce, it is crucial to accurately track your non-exempt employees logged hours and avoid the legal complications that may arise if you fail to do so.
There are several advantages when you hire non-exempt employees in your organization:
Higher payroll flexibility
Depending on your company policy and wage structure, you can choose to pay your non-exempt employees either hourly or salaried.
High levels of employee motivation
By receiving guaranteed overtime pay, your non-exempt employees will work harder and achieve goals faster.
Staff availability
Since they receive payment for the additional work, non-exempt employees are more likely to accept working overtime shifts; this helps you avoid staff shortages during busy times.
Reduced turnover rates
Non-exempt employees are usually less skilled and easier to hire, and they can have different roles within your organization. This feature helps you when dealing with turnover.
While there are certain advantages, non-exempt employment is not ideal for every organization. Here are some of its challenges:
Overtime pay
Paying overtime burdens your payroll budget when your workforce consists of non-exempt employees.
Although they are subject to lower income, your non-exempt employees working overtime can cost you more than exempt employees.
Time-Consuming
Since they are typically less skilled blue-collar staff, non-exempt employees need more supervision, which can be stressful and time-consuming for managers.
Complex scheduling
When paying employees hourly, you should be extra cautious about scheduling and tracking their time. To avoid over- or understaffing, you must anticipate your busy or slow business hours and schedule your non-exempt workforce accordingly.
Since exempt and non-exempt employment types have benefits and drawbacks, weighing several factors in determining which classification best suits your business is crucial.
Start by evaluating your company's needs, resources, and objectives. Then, define the tasks, roles, qualifications, and skills critical for achieving your goals.
If you own a small business, you may hire temporary or part-time non-exempt employees. Nevertheless, consider hiring full-time, exempt staff when the company grows and evolves.
Non-exempt employment is attractive, especially for fresh graduates. This classification allows them to work under the protection of the FLSA regulations regarding overtime pay and minimum hourly rate. However, the managers must closely monitor the schedules of their non-exempt workforce, as the employees must clock in and -out and fulfill the attendance management criteria.
If your company needs a more skilled workforce, hiring exempt employees is the right solution. While they are not working under the protection of fair law regulations, exempt employees can receive a higher wage, regardless of their punch in/ out or other breaks.
In a few words, if you need a more specialized skill set and professional staff, you should hire exempt employees. On the other hand, if an apprentice can manage your current tasks, you may decide to recruit non-exempt employees.
Which classification is superior?
The answer depends on personal preferences, circumstances, and the company's resources and objectives. Some businesses can operate with flexible and dependable employees, while others prefer to pay a higher salary to a more skilled, better-educated, and independent workforce.
Can I reclassify the workforce?
Yes. After thoroughly evaluating the positions, tasks, and requirements, managers can reclassify their employees from exempt to non-exempt and vice versa.
Can a part-time worker be exempt?
Yes, you can classify a part-time worker as exempt, provided they meet the conditions regarding the minimum salary and job duties.