Employee Policies HR Payroll

Are Your Employees Exempt, and Do You Know the Difference?

As an employer, you are responsible for ensuring your compliance with all federal and state regulations.  Accurate employee records are crucial and it is important that you know how to classify employees that work for your business.

There is a distinct difference between exempt and non-exempt employees.  Knowing the difference and properly classifying them will save your business from incurring stiff penalties, fines, back taxes and wages and processing payroll.

Here are some basics on determining who is exempt and non-exempt:

Exempt employees:

  • Must be paid over $23,600 USD a year
  • Must be paid on a salary basis
  • Receive a preset amount for work that cannot be reduced because of the quality or quantity of their work.
  • Must receive their full salary for any week where work is performed, regardless of the number of days and/or hours worked.
  • Must be paid if they are available and willing to work even if the employer has no work to be done.
  • Have duties that must meet the requirements of the allowed exemption category (Executive, Administrative and Professional).

The Executive, Administrative and Professional exemption categories are very specific. Here are some additional guidelines to determine if the employee should be classified as exempt:


The primary duty is managing; duties include supervision of work of two or more full-time employees and their authority includes the ability to hire or fire others.


The primary duty is performing office or non-manual work which relates to managing or general business operations of the job or involving the customers; employs the use of discretion and independent judgment with executive decisions.


The primary duty calls for work which is intellectual in character and utilizes consistent discretion and judgment; advance knowledge required is in science or learning; advanced knowledge required comes from specialized instruction.

There are other exempt categories that may affect this classification. To protect your business and make sure you have selected the correct classification; consult the Wage and Hour Division website.

Non-exempt employees:

  • Annual earnings are $23,660 USD or less.
  • Must be paid overtime (paid time and a half for work performed over 40 hours).

A business must also be careful not to incorrectly classify independent contractors. If the business dictates and controls what work is performed and how it will be performed, that person is NOT an independent contractor, but an employee. Independent contractors do not have an employer-employee relationship.

Take the time to fully understand the differences in classification. Not following the guidelines could have serious ramifications. When in doubt, consult the pros, or make sure you report this information to your payroll provider.   Visit the IRS website for more information and guidelines.

Have questions? Leave your comments below and get answers from the experts in payroll and HR benefits!

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Tess Taylor

Tess Taylor is the Founder and CEO of HR Knows

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