YOUR Cost-effective all-inclusive solution for lowering your business’ liability and overhead.

Employee Classification: Exempt vs. Non-exempt Employment

Share This Post

What is employee classification?

There are a number of classifications into which an employee might fall. These classifications include: Full-time, Part-time, Temporary, Intern and Seasonal. Employees are usually classified based on the hours worked, the expected duration of the job, and the job duties. It is important that employers have a clear policy determining what constitutes a full-time position and part-time with the company. For example, the company might state in their employee handbook, “A full-time employee is an employee who is assigned a definite work schedule of at least thirty-two (35) hours per work week.” These set hours for full-time and part-time employees should stay consistent throughout the company.

Employers have the right to determine what is considered a full-time or part-time position within their company. Although, whether an employee is exempt or non-exempt is not determined by the employer but rather regulated by the FLSA (Fair Labor Standard Act). 

What is the difference between Exempt and Non-exempt employment?

Exempt and non-exempt positions have several differences. Exempt employees are typically paid salary, while non-exempt employees are typically paid hourly. In order to classify an employee as exempt, they must meet the following three requirements:

  1. Salary threshold-. The salary test ensures that the employee is earning a salary equivalent to at least twice the state minimum wage for full-time work.
    a) An example of the minimum salary would be if the minimum wage is $13, $13 X 2 = $26. $26 X 2080 (Hours in a work year based on a 40 hour week), this equals $54,080. The $54,080 is the threshold that all exempt employees must meet.
  2. White-collar duties- The employee must be spending 50% of their time completing administrative, executive, or professional tasks.
  3. Independent judgment-  The employee must be able to exercise independent judgment in their role.

The duties test requires an exempt employee to make independent business decisions on a regular basis and/or manage or supervise two or more employees. The salary test ensures that the employee is earning a salary equivalent to at least twice the state minimum wage for full-time work. 

Can an employee change classification under prevailing wage? 

Work performed on Prevailing Wage Jobs are subject to various classifications that relate to the actual work performed. Prevailing wage law requires that workers be paid according to the rates set for their job classification. One of the most common violations that we see of prevailing wage law is the misclassification of workers. 

Let’s look at an example where this may come up in the field. For example, an employer may classify a worker at a lower classification to reduce the rate the worker is being paid. This is where the employer could be opened up to exposure. If a worker on a prevailing wage job is completing certain duties that meet a certain classification then they MUST be paid at that rate. 

Do I have to track my employee’s time if they are paid salary? 

This depends, exempt employees that are paid on salary are not required to track their time but non-exempt employees who are paid salary are required to track their time. Employers can have exempt employees track their time but their pay can not be docked due to working fewer hours than expected. 

Non-exempt employees who are paid salary must clock in at the beginning of their shift, clock out for their meal break, clock back in from their meal break and clock out at the end of the day. Non-exempt employees are protected by California’s wage and hour laws, including overtime pay, meal breaks, and rest breaks. This means that even though the non-exempt employee is paid by a salary, they are still entitled to overtime. Whereas an exempt employee would not be entitled to any overtime. 

Should employers implement an employee classification policy?

Yes, employee classification can get tricky, therefore,  employers should have a clear policy outlining what determines a full-time or part-time position. This policy should also review exempt vs. non-exempt and who would and would not receive overtime. An employee classification policy is important because it clarifies the employee’s employment status and eligibility for benefits.

More To Explore