Exempt v. Nonexempt Employees: Main Differences Explained

Not all employees are treated the same under wage and hour laws. One of the biggest distinctions? Whether someone is exempt or nonexempt. Misclassification is a common startup mistake - with costly consequences.

What’s the Difference?

• Exempt employees are not entitled to overtime pay. They usually hold professional or managerial roles and are paid a salary.
  
• Nonexempt employees are entitled to overtime (usually time-and-a-half) for hours over 40 per week (or 8 per day in some states like California).
  

How to Determine Status

There are two main criteria:

1. Salary test: Is the employee paid a fixed salary of at least $684/week (as of federal rules; higher in some states)?
   
2. Duties test: Does the role involve executive, administrative, or professional duties?
   

Job titles alone don’t determine exempt status - what matters is what the employee actually does.

Risks of Getting It Wrong

• Wage claims: Misclassified employees can sue for unpaid overtime.
  
• Back pay and penalties: Courts often award double damages and attorney fees.
  
• Audits: State and federal labor departments can investigate.
  

Best Practices

• Review roles regularly - especially as people grow into new responsibilities.
  
• Use job descriptions aligned with exemption criteria.
  
• Track hours even for salaried employees if there’s any doubt.
  

Final Thoughts

Understanding the exempt/nonexempt divide is key to wage law compliance. If you're unsure how to classify a role, get legal guidance. It's much cheaper than a lawsuit.