WHAT IS AN 'Exempt Employee'

Exempt employee is a term that refers to a category of employees set out in the Fair Labor Standards Act. They do not receive overtime pay, nor do they qualify for the minimum wage.

BREAKING DOWN 'Exempt Employee'

Exempt employee classifies employees who are exempt from overtime pay and the minimum wage. Exempt employees are paid not for the hours worked but rather for the work that they performed. In order for an employee to be considered exempt they must use discretion and independent judgment at least 50 percent of the time and must earn more than $455 per week.

Requirements differ from individual state to individual state, but an example of one of the requirements used to classify an exempt employee is that the employee, if in an executive position, must supervise at least two employees and make the decision to either hire or fire said employees. Another common reason an employee may full under the exempt category is if they are an administrative employee who exercises independent judgment more than 50 percent of their working time.

Exempt Employees, Non-Exempt Employees and the Fair Labor Standards Act

The exempt employee category is a result of the the Fair Labor Standards Act, a U.S. law  passed in 1938. The watershed labor law protects workers against unfair pay practices and work regulations. The law has been greatly changed over the last 80 years, but is still one of the most important labor laws in the history of the United States, and sets regulations for a wide array of employee- and employer-related issues.

The Fair Labor Standards Act specifies at which times workers are to be paid and which times they are not expected to be paid, or non-paid hours. An exempt employee does not receive overtime, or time and a half their regular rate, when working excess hours. The act marks overtime as any hours that exceed 40 hours in the seven-day work week. If employers have $500,000 or over per year in gross sales they must adhere the Fair Labor Standards Act. The act applies only to employees employed by an employer, not to independent contractors or volunteers.  

Exempt is one of two categories of employees specified by the Fair Labor Standards Act; the other category of employee is a non-exempt employee. Non-exempt employees are entitled to overtime pay or time and half if they work over 40 hours in a work week, whereas exempt employees are not. The majority of employees covered by the act fall under the non-exempt category.


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