Non-Exempt Employees: Definition and Requirements

What Is a Non-Exempt Employee and How Is This Decided?

Men in the warehouse using a digital tablet are hourly employees.
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Non-exempt employees are employees who, because of the type of duties performed, the usual level of decision-making authority, and the method of compensation, are subject to all Fair Labor Standards Act (FLSA) provisions including the payment of overtime. Non-exempt employees are normally required to account for all hours and fractional hours worked usually using a timecard or other automated tracking system.

Employers must compensate non-exempt employees for all hours worked overtime at the premium (time-and-one-half) rate of pay. All states have this requirement for overtime hours as a result of the FLSA and its FairPay revisions of August 2004 which take precedence over state laws.

Much attention has been directed at the appropriate classification of non-exempt employees since these revised overtime rules were signed into effect. While many exempt employees, reclassified as non-exempt employees, gained the ability to earn overtime, others, such as team leaders who were considered non-exempt employees, lost their overtime pay eligibility as newly exempt employees.

Changes to Non-Exempt Employment Proposed

During the President Barack Obama administration, the Department of Labor issued new guidance that raised the minimum salary level for exemption from overtime from the​ existing $23,660 to $47,476. Of course, such a huge amount of change brought legal challenges from businesses and other agencies who feared that it would have made more than 4 million exempt employees eligible for overtime pay. The current status of this attempted rule change follows.

According to the Society for Human Resources Management (SHRM), "A federal judge in Texas has struck down an Obama-era federal overtime rule that would have made more than 4 million currently exempt employees eligible for overtime pay.

"U.S. District Judge Amos Mazzant granted summary judgment to more than 55 business groups that had challenged the Obama administration's 2016 rule that more than doubled—from $23,660 to $47,476—the minimum annual salary required to qualify for the Fair Labor Standards Act's 'white collar' exemptions. The same court last November blocked the overtime rule from taking effect, but had not declared it invalid."

Non-Exempt Status Is a Result of More Than the Job's Salary

As implemented since 2004, the salary paid for doing a particular job is not the only definition of whether the job qualifies for overtime pay. The duties and responsibilities of the job are taken into consideration so many professionals, administrative employees, and employees with management titles are not eligible for overtime.

Under the proposed changes to the law, everyone who earned less than $47,476 would have been eligible for overtime pay no matter their responsibilities. In the above case, the plaintiffs argued that the 2016 overtime rule raised the minimum salary threshold so high that it made the duties test irrelevant.

The federal district court agreed. "Congress unambiguously intended the exemption to apply to employees who perform 'bona fide executive, administrative or professional capacity' duties," said Mazzant.

Proponents of the new rules argue that the new threshold was meant to protect workers from being taken advantage of by their employers. They believed that the then current threshold had been in place for too many years, was too low, and needed to become tied to the cost of living.

Proposed Overtime Rule Was a Huge Setback

While the goal of this change by the President Obama-supervised labor department was to make more people eligible for time and a half for working overtime, the adoption of this new salary level would have been a huge step backward for workplaces that are no longer the industrial, manufacturing environments of the past.

Proponents believed that millions of employees would have become eligible for overtime pay and that employers would have been forced to hire more employees to accomplish the work. Should this ruling not have been struck down, many people believed that employers would have limited overtime and that the law would have forced them to deal with a two-tiered social system in the workplace. The jury is out on whether this change would have resulted in more employees hired.

The major change that would have occurred was a blow to the egalitarian culture that many workplaces have provided in recent years for employees. No matter how you considered the situation, the new non-exempt from overtime pay rules would have created a two-tiered society in the workplace. Employees who were currently paid salary and were par and equal with all of the other salaried employees would have needed to account for hours and punch a time clock, so to say.

In American workplaces, a divide has always existed between hourly and salaried employees with salaried employees enjoying their status as elite. Salaried or exempt employees have never accounted for hours worked and are responsible for completing their whole job as they see fit during whatever hours they care to work in addition to the workday.

If this law had taken effect, non-exempt employees would no longer share this status. Employers who didn't want to pay overtime would have asked these employees to participate in some form of a timekeeping system.

They would most likely have forbidden them to do email in the evening or work from home since these types of choices would only suit exempt jobs. This is a huge change from what many, currently exempt employees do now.

In workplaces that have steadily moved in the direction of remote work and telecommuting, employers who don't want to pay overtime would have needed to strictly forbid the newly-made hourly employees from working off the clock, and potentially from home. 

In customer service and technical support departments, employees would have needed to be paid overtime for holding customer conversations that extended beyond the eight hour day. These are just several of the examples that come to mind when the relationship of the new overtime rules relative to employees was considered.

Employees who are currently working as non-exempt employees would not have experienced a change. Current exempt employees would have experienced the biggest impact from the changed overtime rules. In some cases, employees would have appreciated the new overtime pay. Most employers would have instead regulated working hours rather than pay employees overtime.

This would have had an impact on the work, the accomplishment of goals, and the psyche and self-esteem of the newly-minted hourly employees—albeit they might have gotten more pay.

Thanks to the judgment of U.S. District Judge Amos Mazzant, employers dodged a huge bullet that would have seriously affected the culture of workplaces country-wide. This allows breathing room while the salary threshold is further discussed.