What Is an Exempt Employee?

An exempt employee is a term that refers to a category of employees set out in the Fair Labor Standards Act (FLSA). Exempt employees do not receive overtime pay nor do they qualify for minimum wage. When an employee is "exempt" it primarily means that they are exempt from receiving overtime pay. Exempt employees stand in contrast to non-exempt employees.

Key Takeaways

  • An exempt employee is an employee that does not receive overtime pay or qualify for minimum wages.
  • Exempt employees stand in contrast to non-exempt employees, which are paid minimum wage and overtime above the standard 40-hour workweek.
  • The details and rules governing exempt and non-exempt employees are covered by the Fair Labor Standards Act (FLSA).
  • Exempt employees are paid by salary rather than hourly and their work consists of an executive or professional nature.
  • The FLSA includes the following job categories as exempt: professional, administrative, executive, outside sales, and computer related.
  • The details vary state by state, but if an employee falls in the above categories, is salaried, and earns a minimum of $684 per week or $35,568 annually, they are considered exempt.

Understanding an Exempt Employee

In any workplace, there are two types of employees: exempt employees and non-exempt employees. Exempt employees are classified as employees who are exempt from overtime pay and the minimum wage. This is because exempt employees are not paid hourly but rather paid by salary, and their jobs are considered to be more of an executive or professional nature. Exempt employees often receive year-end bonuses to compensate for the type of work they do as well as for any overtime hours.

Requirements differ from state to state, but the Fair Labor Standards Act classifies exempt employees as any job that falls into the following categories:

  • Professional
  • Administrative
  • Executive
  • Outside Sales
  • Computer Related

One can see that these classifications are quite broad, and they are intended to be so, as they can encompass a variety of jobs in many different industries. As of January 1, 2020, the FLSA stipulates that employees in the above categories are exempt if they are paid by salary as opposed to hourly and if they earn a minimum of $684 per week or $35,568 annually. This is an increase from $455 per week or $23,660 annually.

In addition to the main categories of exempt employees, there are other categories of employees that may possibly be considered exempt from receiving overtime pay. These include farm workers, motion picture theatre employees, certain employees of non-metropolitan broadcast stations, taxi drivers, employees of railroads, motor carriers, and American vessels, and commissioned employees of retail or service entities.

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

The exempt employee category is a result of 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. An exempt employee does not receive overtime, or time and a half their regular rate, when working excess hours. Time and a half is the minimum an employer has to pay for overtime. It is 1.5x the hourly rate of the employee. The act marks overtime as any hours that exceed 40 hours in the seven-day workweek.