What is an exempt employee?
When you hire employees, you’ll need to classify them as exempt or non-exempt based on federal labor laws. An exempt employee is not eligible for overtime pay under the Fair Labor Standards Act (FLSA). Instead of being paid for extra hours worked, they receive a fixed salary regardless of how many hours they work each week.
Exempt employees are usually salaried professionals in executive, administrative, or specialized roles and must meet specific criteria set by the FLSA.
How do you determine if an employee is exempt?
To classify an employee as exempt, they must meet three key criteria:
- Salary basis: The employee must be paid a fixed salary, not hourly.
- Salary level: As of 2024, exempt employees must earn at least $684 per week ($35,568 annually).
- Job duties test: The employee’s primary job duties must fall into an exempt category, such as executive, administrative, or professional roles.
Employees who do not meet all three criteria should be classified as non-exempt, meaning they qualify for overtime pay when working more than 40 hours a week.
Types of exempt employees under the FLSA
The FLSA outlines several categories of exempt employees:
- Executive employees: Manage a department, supervise at least two employees, and have hiring/firing authority.
- Administrative employees: Perform high-level office or business operations requiring independent judgment.
- Professional employees: Typically require advanced degrees or specialized skills (e.g., lawyers, doctors, engineers).
- Computer employees: Includes software engineers, programmers, and systems analysts who meet specific earning thresholds.
- Outside sales employees: Work primarily outside the employer’s premises and make sales their primary duty.
Understanding these classifications helps ensure compliance with labor laws and prevents costly misclassification penalties.
What happens if you misclassify an employee?
Misclassifying an employee as exempt when they should be non-exempt can lead to serious issues, including:
- Back pay for unpaid overtime: Employers may have to compensate employees for overtime hours.
- Fines and penalties: The Department of Labor may impose fines for labor law violations.
- Lawsuits: Employees can sue for unpaid wages, leading to costly legal battles.
To avoid these risks, it’s crucial to classify employees and track their work hours accurately. If managing payroll and compliance feels overwhelming, using payroll apps can simplify the process by ensuring your employees are accurately classified and paid.
How Homebase simplifies exempt employee management
Keeping up with labor laws, payroll processing, and compliance can be a challenge, but Homebase makes it easy by offering:
- Accurate classification of employees as exempt or non-exempt.
- Automated payroll processing for salaried employees.
- Tracking for hours worked to ensure compliance with labor laws.
- Generated reports to stay on top of labor costs and tax obligations.
Take the stress out of payroll and compliance—sign up for Homebase today and streamline employee classification, payroll, and labor law compliance.