Exempt vs Non-Exempt Employees: How to Classify Your Employees

Employers must be clear on their exempt and non-exempt employees as this greatly changes the benefits, compensation and regulations around their working hours. Failure to comply can result in hefty penalties, and similar consequences from the Fair Labour Standards Authority (FLSA).

Work classification can be a source for confusion for many employers, which can result in non-compliance. Classifying your employees correctly can make a dramatic difference to your payroll.

What is the Difference Between Exempt and Non-Exempt Employees?

There is a key difference between exempt and non-exempt employees. It’s helpful for employers to understand the correct way to classify their employees.

Exempt Employees

An exempt employee describes a professional in a higher paid role, otherwise an executive. This applies to certain industries and roles (such as sales), and to those who are exempt from minimum wage and overtime requirements. This means they work until tasks are completed, rather than working within defined hours.

Non-Exempt Employees

Non-exempt employees must be paid minimum wage and should receive one-and-a-half times pay for anything worked over 40 hours a week.

Who can be an Exempt Employee?

The laws and regulations affecting employment may vary from state to state, and these may have criteria. Firstly, a qualifying employee must earn over the minimum threshold of $35,586 per annum (or $684 per week) to be exempt.

Typically, these positions are ‘white-collar,’ or describe skilled professionals, although exceptions may apply.

How Do I Compensate an Exempt vs Non-Exempt Employee?

For non-exempt employees, compensation can seem simple, especially as pay is dependent on hours worked. Non-exempt employees simply need to provide a timesheet, or other evidence of hours worked.

Exempt employees, however, must be compensated by a salary rather than a conventional hourly rate of pay. Whilst this can vary from state to state, it is a requirement that employers acknowledge a minimum equivalent weekly salary of $684.

Exempt Employees in Oregon

In Oregon, roles typically have higher minimum wages. Employees in Oregon receive no less than the minimum wage of $13.25 per hour within the Portland urban growth boundary, $12 per hour standard, and $11.50 per hour in nonurban counties (as of July 1, 2020) and will continue to increase each year through 2022. Federal minimum wage is only $7.25 per hour and this has not increased since 2009 (as at September 2019).