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Exempt vs non-exempt employees

A non-exempt employee earns overtime. An exempt employee is paid a salary and meets a duties test.

Payroll glossary3 min

What is the difference between exempt and non-exempt employees?

A non-exempt employee earns overtime. An employee is exempt from overtime only if paid on a salary basis at no less than the required weekly amount and the duties test is met.

Why does it matter?

Whether someone is exempt decides whether you owe overtime. Calling someone exempt does not make it so: both the salary and the duties have to qualify.

If the tests are not met, overtime must be paid.

The key facts

Fact	What it means
Non-exempt	Hourly staff, and salaried staff who still earn overtime.
Exempt	Paid on a salary basis at no less than the required weekly amount, and the duties test is met.
Checked against	Non-exempt employees against the minimum wage. Exempt employees against a salary minimum instead.
A salary as an hourly figure	A salary is divided by 2,080 hours.
The effective rate	Pay divided by hours actually worked. A low salary with long hours can fall below the minimum even when the stated rate does not.
Tipped employees	Cash wage plus tips must reach the full minimum.

How does it work in StartEase Payroll?

Set the pay type and the overtime (FLSA) status on the employee record.
StartEase checks the pay against the minimum wage or the salary minimum before every approval.
If the pay is too low, a red message names the problem and your payroll manager corrects it.

Common mistakes

Putting a salaried employee as exempt when the salary is below the required amount.
Ignoring long hours. The effective hourly rate can fall below the minimum.
Assuming a tipped employee only needs the cash wage.

Sources (government sites)

Next: Minimum wage: how StartEase checks it