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Exempt vs Non Exempt Employee: What’s the Difference?

Are you managing a team of workers? If so, you’ve probably had to figure out the difference between exempt vs non-exempt employees.

In recent years, definitions and guidelines for basic employee statuses have become complicated. There are a variety of factors to keep in mind when distinguishing between exempt and non-exempt employees.

If you’d like to learn more about the difference between exempt vs non exempt employee, this quick guide is for you.

Definition of Exempt and Non-Exempt Employees

Exempt employees are those who are exempt from overtime laws and other legal protections, such as minimum wage laws. They are not entitled to overtime pay or the same wages as non-exempt workers.

Non-exempt employees are protected, like FLSA or FWC in Australia. They are entitled to receive the minimum wage and overtime pay. Generally speaking, executive, administrative, and professional employees are classified as exempt. Manual labor and factory workers are usually classified as non-exempt.

Tax Considerations

Tax implications are typically more beneficial for exempt employees. Their wages are paid on a set salary that is not taxed differently, like with non-exempt employees.

Non-exempt employees may have varying wages depending on their hours worked. Additionally, employers must pay more taxes, such as Social Security and Medicare taxes. In contrast, exempt employees do not incur additional expenses for similar taxes.

Eligibility Requirements

Exempt employees must meet certain requirements to be eligible for a salary-based pay structure. Their job duties must meet certain criteria to qualify.

Specifically, exempt employees must meet the salary basis test and be paid on a salary basis. This is with specific exclusions for commissions, bonuses, overtime, or other variable elements.

Non-exempt employees are entitled to overtime compensation and are not bound by the salary basis test. This does not mean, however, that they are not eligible for benefits. Non-exempt employees are typically eligible for the following:

  • bonus
  • incentive pay
  • vacation and sick time
  • stock options

It is important to bear in mind that state-specific laws may differ from federal minimums. So employers should always familiarize themselves with their state’s laws before classifying employees and setting up their payroll service.

Benefits and Drawbacks

Benefits for exempt employees can include more job security, flexible work hours, and not having to clock in and out. Drawbacks of this type of employment include a possible lack of job progress. Higher levels of stress due to higher job responsibilities may also be expected.

Non-exempt employees enjoy the opportunity to enroll in certain benefit plans such as health insurance. Drawbacks for non-exempt employees may include a lack of job security, less flexibility, and the need to punch in and out.

Understand the Difference Between Exempt vs Non Exempt Employee

In conclusion, determining an exempt vs non exempt employee is critical. It can mean the difference between getting paid and being underpaid. It could also mean working regular hours and facing overtime, and having certain job protections.

Get in touch with an employment attorney to learn more about specific laws in your state.

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