What is an exempt employee?

When you hire employees, you’ll need to classify them as exempt or non-exempt based on federal labor laws. An exempt employee is not eligible for overtime pay under the Fair Labor Standards Act (FLSA). Instead of being paid for extra hours worked, they receive a fixed salary regardless of how many hours they work each week.

Exempt employees are usually salaried professionals in executive, administrative, or specialized roles and must meet specific criteria set by the FLSA. Homebase payroll helps ensure that all employees are classified correctly and paid accurately.

How do you determine if an employee is exempt?

To classify an employee as exempt, they must meet three key criteria:

1. Salary basis – The employee must be paid a fixed salary, not hourly.
2. Salary level – As of 2024, exempt employees must earn at least $684 per week ($35,568 annually).
3. Job duties test: The employee’s primary job duties must fall into an exempt category, such as executive, administrative, or professional roles.

Employees who do not meet all three criteria should be classified as non-exempt, meaning they qualify for overtime pay when working more than 40 hours a week.

Types of exempt employees under the FLSA

The FLSA outlines several categories of exempt employees:

• Executive employees – Manage a department, supervise at least two employees, and have hiring/firing authority.
• Administrative employees – Perform high-level office or business operations requiring independent judgment.
• Professional employees – Typically require advanced degrees or specialized skills (e.g., lawyers, doctors, engineers).
• Computer employees – Includes software engineers, programmers, and systems analysts who meet specific earning thresholds.
• Outside sales employees – Work primarily outside the employer’s premises and make sales their primary duty.

Understanding these classifications helps ensure compliance with labor laws and prevents costly misclassification penalties.

What happens if you misclassify an employee?

Misclassifying an employee as exempt when they should be non-exempt can lead to serious issues, including:

• Back pay for unpaid overtime – Employers may have to compensate employees for overtime hours.
• Fines and penalties – The Department of Labor may impose fines for labor law violations.
• Lawsuits – Employees can sue for unpaid wages, leading to costly legal battles.

To avoid these risks, it’s crucial to classify employees and track their work hours accurately. If managing payroll and compliance feels overwhelming, Homebase payroll can simplify the process by ensuring your employees are accurately classified and paid.

Protect your business from misclassification risks—Homebase payroll helps you track employee hours and maintain compliance with ease.

Pros and cons of hiring exempt employees

Before deciding whether to hire exempt or non-exempt employees, consider these advantages and potential drawbacks:

Pros:

• Fixed salary makes payroll predictable.
• No need to track hours or pay overtime.
• Best for managerial and specialized roles requiring flexibility.

Cons:

• Higher salary requirements.
• Employees may feel overworked without overtime compensation.
• Misclassification risks if job duties don’t meet FLSA requirements.

How Homebase simplifies exempt employee management

Keeping up with labor laws, payroll processing, and compliance can be a challenge, but Homebase makes it easy by offering:

• Accurately classify employees as exempt or non-exempt.
• Automate payroll processing for salaried employees.
• Track hours and ensure compliance with labor laws.
• Generate reports to stay on top of labor costs and tax obligations.

Take the stress out of payroll and compliance—sign up for Homebase today and streamline employee classification, payroll, and labor law compliance.

Related Articles

• FLSA: what to know for your small business
• Exempt & Nonexempt Employees: What the Difference is & How to Classify Them
• 5 Common Wage & Hour Mistakes Every Employer Should Avoid

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