The Fair Labor Standards Act (FLSA), first passed in 1938 and amended many times since, outlines minimum wage and overtime requirements for non-exempt workers in the United States.
What Is an Exempt Employee?
Exempt employees are those that are exempt from the minimum wage and overtime requirements set by the FLSA, usually because they receive a relatively high annual salary and work in a “white collar” profession.
Exempt employees may work more than 40 hours some weeks and fewer than 40 hours other weeks, but they receive the same monthly pay regardless of hours worked and do not receive overtime compensation. Typically, exempt employees are eligible for certain benefits like performance-based bonuses and employer-sponsored healthcare and retirement plans, but this is not always the case.
Examples of positions that often qualify as exempt include researchers, executives, computer professionals, legal professionals, administrators, and other “white collar” workers whose positions do not involve physical labor or repetitive manual tasks.
What Is a Non-Exempt Employee?
A non-exempt employee is a worker who is protected by the FLSA, meaning they must be paid at least minimum wage (federal, state, or municipal—whichever is highest where they work) for their first 40 hours worked per week and at least 1.5 times their normal hourly rate for any additional hours.
Examples of positions that are usually non-exempt include “blue collar” occupations like construction, manual labor, retail, service, hospitality, and first responders.
What Positions Qualify for Exempt Status?
To qualify for exempt status, a position must fall into one of several eligible job categories and come with a minimum level of salaried compensation. Legally, a company must prove that a position qualifies as exempt if asked to do so by the Wage and Hour Division, the arm of the Department of Labor responsible for investigating wage theft claims and enforcing the FLSA.
Job Requirement (Duties) Test
To qualify as exempt, a position must fall into one of the following seven categories:
- Learned professionals
- Creative professionals
- Executive employees
- Administrative employees
- Computer employees
- Outside sales employees
- Highly compensated employees (anyone with an annual salary of $107,432+)
For more information on exactly what sorts of jobs the above categories include, examine Fact Sheet #17A on the Department of Labor’s website.
Minimum Salary Test
In addition to falling into one of the categories listed above, a position must also pay more than $35,568 per year, or $684 per week to qualify as exempt. Employers may include nondiscretionary bonuses, commissions, and other incentive payments to account for up to 10 percent of the compensation minimum necessary for exemption.
The above minimums reflect the national minimum wage of $7.25 per hour, but in states and municipalities that have higher minimum wages, the minimum salary amounts that qualify a position for exempt status may be higher as well. For instance, in California, where the state minimum wage is $15.50 per hour, salaried employees must make at least $1,240 per week or $64,480 per year to qualify as exempt.
Minimum Salaries for Exempt Employees by State
Most states enforce the federal minimum salary of $35,568 per year or $684 per week for exempt employees, but the following states enforce higher minimums:
- Alaska: $45,136
- California: $64,480
- Colorado: $50,000
- Maine: $41,401
- New York: $55,341 ($58,511 in NYC, Nassau, Suffolk, & Westchester)
- Washington: $57,293.60 (1–50 employees); $65,478.40 (51+ employees)
What Are the Pros and Cons of Working as an Exempt Employee?
Exempt status comes with certain advantages that many employees value, but it also has some drawbacks and may not be preferable for all workers. Whether exempt status is advantageous for any given individual varies from job to job and is also based on personal preferences.
Advantages of Working as an Exempt Employee
In general, exempt positions tend to come with higher total annual compensation than non-exempt positions, although this certainly isn’t always the case. For instance, an exempt administrative employee making the federal minimum of $684 per week may not make as much as a tipped, non-exempt server at a popular, high-end restaurant in a dense metropolitan area. That being said, most exempt positions do pay more in total than most non-exempt positions.
Another upside to exempt employment is the financial security and predictability of a guaranteed paycheck in the same amount every two weeks. This is particularly beneficial for individuals who adhere to a strict budget, as it is easy to know how much discretionary income will be left over for saving or spending each month after basic necessities have been covered.
Another advantage that most—but not all—exempt employees enjoy is a benefits package, which usually includes some form of employer-sponsored, discounted health insurance, employer-sponsored retirement account like a 401(k), paid sick and vacation time, and the potential for periodic bonuses.
Disadvantages of Working as an Exempt Employee
One major disadvantage of exempt status is the possibility of working significantly more than 40 hours per week without any additional compensation. Many exempt workers don’t need to worry about this, but certain managers do ask a lot of their exempt team members, which can lead to a high-pressure work environment with long hours.
On the other side of the coin, however, exempt employees’ pay is guaranteed even if they work fewer than 40 hours per week, assuming they complete the work assigned to them.
Frequently Asked Questions (FAQ)
Below are answers to some of the most common questions employees have about exempt status.
Is There a Cap to the Number of Hours an Exempt Employee Can Work?
There are no federal laws limiting the total number of hours an exempt employee may work in a given week. Individual states and municipalities may or may not have their own limits.
What Happens When an Exempt Employee Runs Out of PTO and/or Sick Time? Can Exempt Employees’ Pay Be Docked if They Leave Early?
Once an exempt employee runs out of sick days and paid time off, their employer may deduct a day’s pay for every full work day the employee does not work. However, employers may not dock wages for partial days if an exempt employee works less than a full day.
Are Exempt Employees Entitled to Meak Breaks?
Federal law does not require meal breaks for exempt employees, but many states’ labor laws (e.g., California, Illinois) do require employers to allow meal breaks for exempt workers.
