The exempt or nonexempt status of employees is determined by

Most jobs are governed by the FLSA. Some are not. Some jobs are excluded from FLSA coverage by statute. Other jobs, while governed by the FLSA, are considered "exempt" from the FLSA overtime rules.

Exclusions from FLSA coverage.

Particular jobs may be completely excluded from coverage under the FLSA overtime rules. There are two general types of complete exclusion. Some jobs are specifically excluded in the statute itself. For example, employees of movie theaters and many agricultural workers are not governed by the FLSA overtime rules. Another type of exclusion is for jobs which are governed by some other specific federal labor law. As a general rule, if a job is governed by some other federal labor law, the FLSA does not apply. For example, most railroad workers are governed by the Railway Labor Act, and many truck drivers are governed by the Motor Carriers Act, and not the FLSA. Many of FLSA exclusions are found in §213 of the FLSA.

Exempt or Nonexempt.

Employees whose jobs are governed by the FLSA are either "exempt" or "nonexempt." Nonexempt employees are entitled under the FLSA to time and one-half their "regular rate" of pay for each hour they actually work over the applicable FLSA overtime threshold in the applicable FLSA work period. (See, "FLSA Overtime")

Exempt and nonexempt: You've likely seen these terms when filling out an application, noticed them in job postings and heard them used in conversation. But if you're like most people, the difference between the two categories is fuzzy at best. Do you even know what exempt workers are exempt from?

Let's start at the beginning. The Fair Labor Standards Act (FLSA) requires that employers classify jobs as either exempt or nonexempt. Nonexempt employees are covered by FLSA rules and regulations, and exempt employees are not.

What is an exempt employee?

Exempt positions are excluded from minimum wage, overtime regulations, and other rights and protections afforded nonexempt workers. Employers must pay a salary rather than an hourly wage for a position for it to be exempt. Typically, only executive, supervisory, professional or outside sales positions are exempt positions.

What is nonexempt employee?

Nonexempt employees, as the term implies, are not exempt from FLSA requirements. Employees who fall within this category must be paid at least the federal minimum wage for each hour worked and given overtime pay of not less than one-and-a-half times their hourly rate for any hours worked beyond 40 each week.

Tax liability differences

Aside from the various tax brackets into which we all fall based on our income level, there is no difference in how exempt and nonexempt employees are taxed. For both categories of workers, all pay is “earned income” and therefore taxable to the wage earner based upon tax bracket. Income is income; it doesn't matter if it's earned by the hour or as an annual salary.

Overtime implications

Exempt employees are generally expected to devote the number of hours necessary to complete their respective tasks, regardless of whether that requires 35 hours per week or 55 hours per week. Their compensation doesn't change based on actual hours expended. Exempt employees aren't paid extra for putting in more than 40 hours per week; they're paid for getting the job done. On the other hand, nonexempt employees must be paid overtime if they work more than 40 hours per workweek, so it often behooves employers to keep nonexempt employees' hours down.

Workers' rights and benefits implications?

Generally speaking, nonexempt employees receive more protection under federal law than exempt employees. However, most employers treat their exempt and nonexempt employees in a similar manner. The primary pieces of federal legislation that apply to the workplace are the right to a safe and healthful work environment, the right to equal employment opportunities, and the rights provided under the Family and Medical Leave Act and federal child labor laws. These laws apply to exempt and nonexempt workers alike.

Unemployment implications

Although unemployment benefits vary from state to state, generally both exempt and nonexempt employees can collect unemployment benefits. But to be sure just what those benefits include, check with your state's Department of Labor.

So which is better?

That depends on you. Some workers would rather be employed in nonexempt positions to ensure they're paid for every hour they work. Others prefer the latitude that comes with salaried positions. For example, most nonexempt employees are going to be held to a more stringent standard regarding things like casual time. Exempt employees can ordinarily spend a reasonable amount of time around the watercooler without incurring the boss's wrath; nonexempt employees' time tends be more closely monitored, and designated breaks are allowed only at certain times during the workday.

Generally, exempt employees are paid more than nonexempt employees, because they are expected to complete tasks regardless of the hours required to do them. If staying late or coming in early is required to do the job, exempt employees are frequently expected to do just that. Nonexempt employees typically work only the prescribed number of hours.

This article is intended to be a primer on this issue, but HR laws and regulations can be enormously complex. For more information, visit the Department of Labor's Web page that addresses these issues.

Additional info for today's workers

There's a lot to know when you're a member of the workforce. The more informed you are, the better off you'll be, both now and in the future. Need some help keeping on top of the important stuff? Join Monster today. As a member, you'll get career advice and useful tips sent directly to your inbox. We'll help you make sense of the complex issues so you can concentrate on your job. Isn't that a relief?