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Nonexempt Employee

>> HR Glossary/  Compensation & Benefits / Nonexempt Employee

What is a nonexempt employee?

A nonexempt employee is any employee who is not exempt from the overtime provisions of the Fair Labor Standards Act (FLSA). All nonexempt employees, then, are entitled to be paid at least the legal minimum wage and overtime pay for any hours they work beyond the first 40 work hours of any given week. Overtime pay is equal to 1.5 times their usual pay rate. 

Nonexempt employees are not always hourly and may also be paid on a salaried or other basis. However, even in these cases, they are entitled to overtime pay for any work performed beyond their first 40 hours each week. 

Nonexempt vs. exempt employees 

The other main classification of an employee is exempt. Exempt employees differ from nonexempt employees in several ways. Exempt employees:

  • Are not entitled to overtime pay 
  • Are not required to work a certain number of hours 
  • Must fulfill certain job duties 
  • Are always salaried (rather than paid hourly) 
  • Must be paid at least $684 per week 

HR personnel must always consider exempt vs. nonexempt employee status in any given case to properly administer policies regarding pay. 

Is a salaried employee exempt or nonexempt? 

Although exempt status always means salaried, salaried does not always mean exempt. While it is more common for salaried employees to be exempt than nonexempt, FLSA regulations for exempt and nonexempt employee classifications do not prohibit employers from paying nonexempt employees on a salaried basis.

Therefore there are both salaried exempt employees and salaried nonexempt employees. 

Does the job title indicate employee classification? 

Job titles do not indicate employee classifications as either exempt or nonexempt. Even if they may typically be attached to positions that fall into either of these categories, employers are not required to withhold (or apply) certain titles to either employee classification. 

Nonexempt employee classification 

For any given employee to be classified as nonexempt, their job must meet the following criteria: 

  • Are generally paid an hourly rate 
  • Qualify for overtime pay
  • Earn at least the federal minimum wage 
  • Are directly supervised

Note that a few industries have hourly workers who do not have the nonexempt eligibility for overtime pay, including movie theater businesses, railroad businesses, and agriculture businesses. 

Nonexempt vs Exempt Employees

Nonexempt employee rights 

Nonexempt employees are entitled to certain rights that exempt employees are not entitled to. 

Fair Labor Standards Act (FLSA) 

The Fair Labor Standards Act (enacted in 1938 and most recently amended in 2020) is the active legislation governing nonexempt employees’ employment and rights. It lays out the federal laws regarding minimum wage, overtime pay, and other aspects of employment compliance that employers must observe.

Note that the FLSA status does not determine breaks, pensions, holiday pay, or raises; thus, these issues are left in the hands of individual states and then individual businesses. 

Minimum wage requirements 

The FLSA states the federal minimum wage amount, an amount that must be met or exceeded by employers for their nonexempt employees. Currently, the federal minimum wage established by the FLSA is $7.25 per hour. 

However, states have a right to establish minimum wage requirements for nonexempt employees that may exceed the federal minimum wage. If and when this occurs, businesses in that state must comply with the higher amount as their minimum hourly rate for nonexempt employees. 

Overtime pay 

The FLSA also details that overtime (any hours that are worked beyond the first 40 hours of any given workweek) must be paid at 1.5 times the usual rate of that employee’s pay. There is no limit set by the FLSA to how many overtime hours an employee may work. 

Timekeeping and recordkeeping obligations for HR 

Timekeeping and recordkeeping are some of the most important aspects of nonexempt employee management that fall to HR personnel. These records help to protect all parties involved and from facing government fines or other punitive measures. 

1. Tracking hours worked 

Tracking hours worked by nonexempt employees is vital for ensuring that employees are paid properly. The method of tracking of these hours is not specifically defined by the FLSA, except that the timekeeping records must include an accurate log of the hours worked (including any overtime hours worked). 

2. Recordkeeping requirements 

There are other recordkeeping requirements besides tracking hours that HR personnel must keep. These records must include:

  • Employee’s basic information (including SSN and address) 
  • Official time and day of workweek beginning 
  • Hours worked each day and week 
  • Basis of pay and hourly rate 
  • Straight-time earnings (either daily or weekly) 
  • Overtime earnings for each week 
  • Other additions or deductions from the employee’s pay 
  • Dates of payments and pay periods 

Employers are required by FLSA to keep at least three years of these payroll and other records for each employee. 

HR tip

HR teams should carefully outline and define employee classification (and what it means for any new hire) during the onboarding process. This can help to prevent confusion and employee dissatisfaction later on. 

HR compliance responsibilities

To maintain compliance and protect both the employees and employer in question from legal ramifications, HR teams need to have a solid grasp of what exempt and nonexempt classifications are, who has which classification, and how to properly administer payroll and other practices that may vary by individual. 

Some of the most important HR responsibilities with regard to employee classification are the following: 

  • Ensuring that employees are classified correctly as either nonexempt or exempt 
  • Ensuring that employees are paid according to minimum wage amounts and overtime requirements 
  • Ensuring that employee records are being kept accurately to avoid fraud 

If the HR staff of a business do not comply with federal or state requirements regarding exempt and nonexempt employee status, they may open themselves, their fellow employees, and their employer to disciplinary action by the government. That may include significant fines and imprisonment. 

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