What is an Exempt employee in the workplace? Pros & cons

Exempt employees are not entitled to overtime compensation or minimum wage under the FLSA. They typically receive salaries and benefits, distinguishing them from nonexempt workers.

By Brad Nakase, Attorney

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An Exempt Employee: What Is It?

Under the FLSA (Fair Labor Standards Act), certain types of employees are referred to as exempt employees. Both overtime compensation and minimum wage are not applicable to an exempt employee. The kind of job they do determines this. A worker who is an exempt employee is essentially not entitled to overtime compensation. Employees who are exempt are distinguished from those who are not.

Important Points

  • A worker who isn’t eligible for minimum wage or overtime compensation is considered an exempt employee.
  • Workers in professional, executive, administrative, executive, computer-related jobs and outside sales are exempt from paying by hourly rate and are given a salary instead.
  • Employees classified as exempt are distinguished from nonexempt workers, who are entitled to overtime compensation and no less than a minimum wage for any period that they work beyond a 40-hour week.
  • FLSA regulates the specifics and guidelines that apply to nonexempt and exempt workers.
  • If an employee meets any of the aforementioned criteria, is paid on a salary, and makes at least $684 a week ($35568 yearly), they typically come under the nonexempt category.

Comprehending Exempt Employee

Nonexempt and exempt employees are the two categories of workers in any place of employment. Workers whose jobs are exempt from overtime and minimum wage rules are known as exempt employees. This is so because workers who are classified as professional or executive personnel receive salaries rather than hourly wages. To make up for the kind of job they perform and any overtime they may have put in, exempt employees frequently get bonuses at the end of the year.

State-specific requirements differ, but any position that fits into one of the following categories is considered exempt under the FLSA:

  • Professional
  • Executive
  • Administrative
  • Computer-related
  • Outside Sales

The purpose of these classes is to be quite wide. This is because they cover a wide range of occupations across several sectors. Effective 2022 (1st January), the FLSA will stipulate that workers in the categories mentioned above qualify for exemption if they get a salary rather than hourly pay and make at least $684 a week ($35568 yearly). This cutoff was altered in some areas in 2022 as a result of minimum wage increases in 26 states in the United States.

There are other employee groups that might also be excluded from overtime compensation besides the primary exempt list. These include workers from farms, movie theaters, some non-metropolitan broadcasting station staff, taxi drivers, railroads, motor transporters, and American ships. Commissioned sales staff from service or retail companies are also included in this list.

Important: Workers that fit within the computer-linked categories could get hourly pay. Hourly workers should be paid a minimum of $27.63 an hour in order to qualify as exempt.

The FLSA, Nonexempt Employee, and Exempt Employee

The FLSA enacted in 1938 was what gave rise to the exempt worker category. Workers are shielded from discriminatory wage policies and work rules by the groundbreaking labor law. Despite significant changes over the past 85 years, the legislation remains among the most influential labor laws in American history, establishing guidelines for a variety of matters pertaining to both employers and employees.

The FLSA lays out the circumstances under which workers must be compensated and when they are not. For example, an exempt employee is not entitled to overtime or time & a half when they work more than the required number of hours. The minimal amount that a company must pay overtime is one & a half times the worker’s hourly wage. Any number of hours worked over 40 in a 7-day week is considered overtime under the statute.

Quick Fact: Only white-collar workers who satisfy the wage and position requirements are eligible for the FLSA exemption. Therefore, neither blue-collar employees nor those who “carry out work requiring repetitive tasks with the hands, physical ability, and effort” are covered by the exemption. Law enforcement officials, firefighters, medical professionals, and various other emergency personnel are not included in the list of staff members who are exempt under the FLSA.

Benefits and Drawbacks of Exempt Employee Category

Advantages of being an Exempt Employee

The assurance of a consistent income is the first benefit of working as an exempt employee. An Hourly employee typically earns less than an exempt employee. Additionally, they might typically have availability of extras like retirement benefits, like:

·      IRAs (Individual retirement accounts)

·      401(k) plans

·      Bonuses

·      Pensions

·      Health plans provided by employers

·       Paid sick days and vacation time

Disadvantages of being an Exempt Employee

Being ineligible for overtime compensation is the main drawback. Your employer’s attitude may force you to put in lengthy hours in order to complete an overworked portfolio, with no way to get more money back or relieve the tension that comes with working so many hours. To put it succinctly, your boss controls you.

Pros

·      Greater compensation than that of hourly employees

·      Obtaining perks provided by the employer

Cons

·      Not qualified for overtime compensation

·      Working longer hours may be required of you.

What Qualifies a Worker as an Exempt Employee?

According to the FLSA, any worker performing work connected to computers, STEM (science, technology, engineering, and math), outside sales, professional, administrative, executive, or any combination of these areas is considered an exempt employee. According to the FLSA, workers who fall into one of the aforementioned categories and who get a salary rather than hourly pay are exempt provided they make at least $684 a week ($35568 yearly). Because 26 states in the United States raised their minimum salaries in 2022, please note that these amounts may differ by state.

What Benefits Come With Working as an Exempt Employee?

The assurance that your salary is fixed is the first benefit when you work as an exempt employee. Additionally, exempt workers typically have higher incomes than hourly workers and are entitled to benefits including paid time off, time off for illness, company-sponsored health plans, bonuses, 401(k) schemes, personal retirement accounts, and pensions, as well as retirement benefits.

What Drawbacks Come With Working as an Exempt Employee?

The inability to qualify for minimum pay or overtime is the primary drawback. Your employer’s attitude may force you to put in lengthy hours to complete an overworked portfolio, with no way to get more money back or relieve the tension that comes with working so many hours. To put it succinctly, your boss controls you.

The Final Word

Workers who are exempt from taxes typically receive a fixed salary and are paid more than their hourly counterparts who are not exempt. Retirement perks that include bonuses, 401(k) schemes, bonuses, company-sponsored health plans, and compensated time off in the shape of sick and vacation days are also usually available to full-time including numerous part-time exempt workers.

Lack of overtime pay eligibility is the primary drawback of working as an exempt employee. That possible drawback is probably outweighed by the advantages of exempt status for the majority of employees.

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