When you welcome a new team member on you may see two words floating around: Tax exempt and nonexempt. Isn’t exempt just another word for “excused?” If so, what are they excused from? In this HR guide to understanding exempt employees, we will clarify what these terms mean.
So what does exempt mean? That is an excellent question with a reasonably simple answer. Your new employee is excused from the rules in the Fair Labor Standards Act, or FLSA. So that means they might not be entitled to minimum wage or other protections most employees receive.
The HR Guide to Understanding Exempt Employees
Fair Labor Standards Act (FLSA)
The Fair Labor Standards Act is a set of rules and regulations about how individuals should be treated in a work environment. These rules include minimum wage requirements, leave, overtime, record-keeping, and other protections. Regarding classification, the FLSA divides employees into two sectors: exempt and nonexempt. The federal government does this to separate those whom the laws apply.
What Does it Mean to be Exempt?
These types of employees are exempt or not covered by Fair Labor Standards Act rules. Because they are salary and have certain responsibilities, they do not receive overtime and may be ineligible for minimum wage standards.
However, one serious misconception is that all salaried employees are automatically classified as exempt. This is not true and assuming this could cost your business serious federal penalties.
Exempt status is linked to the individuals’ work duties, salary and their independence in the work environment. They must meet all of the following conditions to classify as exempt, as outlined by the Department of Labor.
Salary Level: Exempt employees are paid at least $55 per week or $23,660 per year.
Salary Base: Your employee’s salary is concrete and will not change as a result of performance or sales.
Duties: Employees must be in one of the following roles: Administration, computer/systems, executive level, outside sales, or professional. Your employee does not have to possess one of the titles but rather the duties of the position influence their status.
Simplify Your Second Quarter Payroll
Understanding which laws apply to exempt and nonexempt employees is vital to your business. Take some time to review the status of your team to ensure they are being paid fairly based on their classification.
Once you check that task off your agenda, you can move on to the million other tasks begging for your attention. Want a head start on your ACA compliance? Sign-up for your free ACAwise demo, today!
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