Nonexempt Employee

What Is a Nonexempt Employee?

Nonexempt employees are workers who are entitled to earn at least the federal minimum wage and qualify for overtime pay, which is calculated as one-and-a-half times their hourly rate for every hour they work above and beyond a standard 40-hour workweek. These regulations are created by the federal Fair Labor Standards Act (FLSA).

Key Takeaways

  • Nonexempt employees are generally hourly rate employees, who must be paid an overtime rate of 1.5 times their hourly rate.
  • Exempt employees make at least $684 a week or $35,568 annually and are usually paid a salary.
  • Nonexempt employees typically make less than this amount, but not always as the thresholds can differ by state.
  • Nonexempt employees’ rights are outlined in the Fair Labor Standards Act (FLSA), which was recently amended starting Jan. 1, 2020.

Understanding Nonexempt Employees

“Nonexempt” is a term referring to employees who earn less than $684 per week, although that’s not always the case, as 26 U.S. states will be increasing their minimum wage in 2022. Nonexempt means that the employee is not exempt from the FLSA and must be paid overtime. The $684 weekly wage, resulting in an annual threshold of $35,568, was put into effect on Jan. 1, 2020. It replaced the old weekly wage of $455.

Furthermore, nonexempt employees:

  • Are directly supervised by higher-ups who manage the workflow
  • Cannot be "bona fide executive, administrative, professional and outside sales employees,” according to the FLSA. Individuals who are teachers, academic administrative personnel, and computer workers are also considered to be exempt.

Nonexempt employees are expected to dutifully carry out orders, without interjecting their own management decisions. For this reason, nonexempt employees tend to dominate job sectors such as construction, maintenance, and other work that involves physical labor or carrying out repetitive tasks. Assembly line workers are also a key example of nonexempt employees.

Nonexempt Employee Distinctions and Qualifications

Nonexempt employees are typically paid hourly wages, unlike exempt employees, who generally earn fixed salaries. However, while nonexempt workers must receive overtime pay of one-and-a-half times their hourly wage, for all hours worked in excess of a 40-hour workweek, exempt employees are not legally entitled to collect overtime pay—even if their workweeks radically exceed 40 hours.

Under the FLSA, workers may be considered nonexempt if they either earn less than the $684 weekly minimum or have limited scope for self-supervision. Take, for example, a maintenance worker who’s hired to work 40 hours per week at $18 an hour. With typical weekly earnings of $720, they easily pass the salary test to be designated as an exempt worker, since their weekly income exceeds the $684 threshold. 

But this worker is also directly supervised and therefore has a minimal opportunity for independent judgment. Hence, they are ultimately classified as a nonexempt employee. If this staffer works 50 hours in a single week, they would earn their regular $18/hour rate for 40 hours, while earning 1.5 times their hourly rate at $27 for each of the 10 extra hours they clocked in.

Under the FLSA, nonexempt employees must earn at least the federal minimum hourly wage of $7.25. However, many states and some municipalities impose higher minimum wages versus the federal floor. In these cases, the higher minimum wage overrides the federal rate.

Advantages and Disadvantages of Nonexempt Status

Whether it is preferable to be a nonexempt employee versus an exempt one largely depends on an individual’s priority for work-life balance. The biggest benefit to being a nonexempt employee is arguably the ability to enjoy additional compensation for working long hours, although this may be at a lower rate than salaried exempt employees.

On the other hand, an exempt worker may be able to occasionally duck out of work early and still collect a full paycheck. That being said, nonexempt employees also tend to receive more protection under labor laws like the FLSA than exempt employees.

Because exempt employees are entitled to their full paycheck, they will receive a full salary every workweek, even if unforeseen circumstances such as a crisis require exempt employees to work remotely or under new arrangements.

On the flip side, nonexempt employees in these circumstances are not entitled to pay if their physical presence is required for their jobs and they are unable to perform their duties. Either way, nonexempt employees are required to log their hours. For example, nonexempt employees folding clothes at a retail store will not get paid if the store is either undergoing remodeling or closed on a given week.

Meanwhile, retail store managers who are exempt might still get paid nonetheless for the remote work that they do in managing store operations.

Exempt workers are also more likely to receive benefits such as paid time off, healthcare coverage, and participation in retirement plans. However, both nonexempt and exempt employees are equally eligible for government employment benefits. Case in point: Both categories of workers qualify for Social Security benefits once they retire, and both may be eligible to collect weekly unemployment payments should they lose their jobs. 

What Is the Difference Between an Exempt Employee and a Nonexempt Employee?

The difference between an exempt employee and a nonexempt employee is that nonexempt employees are entitled to overtime pay. Exempt employees, on the other hand, do not qualify for overtime pay.

Is It Better to Be an Exempt Employee or a Nonexempt Employee?

Whether it is better to be an exempt employee or a nonexempt employee depends on a variety of factors, such as the type of job and a person's background, education, and personal situation. Exempt employees are generally paid higher and receive benefits at their jobs, such as retirement plans and health insurance; however, they are not paid for overtime and, therefore, may not be compensated appropriately if their job requires long hours.

Can an Employee Be Salaried and Nonexempt?

Yes, an employee can be "salaried, nonexempt," meaning that they receive a weekly salary (or however the employer chooses to pay) and qualify for overtime pay for any hours worked over 40 hours a week. Nonexempt employees do not have to be paid hourly; they can be paid in a variety of manners, via commission, salary, hourly, etc, as long as the compensation meets minimum wage requirements.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. U.S. Department of Labor. "Wages and the Fair Labor Standards Act."

  2. U.S. Department of Labor. "U.S. Department of Labor Issues Final Overtime Rule."

  3. Wolters Kluwer. "More Than Half of U.S. States to Institute a Minimum Wage Increase in 2022."

  4. U.S. Department of Labor. "Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA)."

  5. U.S. Department of Labor. "Minimum Wage."

  6. U.S. Department of Labor. "Overtime Pay."

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