As an employer, there’s a lot about your role that’s fulfilling: Building a diverse, passionate team, mentoring employees throughout their careers, watching them grow their skills, gain confidence and shine …

But there are also some (let’s face it) less exciting parts of being an employer — like navigating employee classifications correctly.

While we wish we could tell you it was simple, how you pay, schedule and assign tasks to employees may change based on whether an employee is exempt or non-exempt. And understanding your employees’ exemption status doesn’t just impact your ability to make strategic decisions about your team and budget — it’s also the key to complying with federal laws.

Before we dive in, it’s important to note: You’re solely responsible for complying with laws applicable to you, including but not limited to federal, state and local labor and employment laws. Heartland is not responsible for ensuring your compliance with various laws. All information listed here is for informational purposes only, and all clients must seek the advice of their legal counsel.

Now that we’ve covered that, read on as we walk through the ins and outs of exemptions:

• Employee classifications at the federal level

• Employee classifications at the state level

• Upcoming changes to the Fair Labor Standards Act (“FLSA”)

• What to expect if you misclassify an employee

• Compliance strategies you can put to work immediately

• How the right partner can help

• FAQs

FLSA employee classifications

Before we dive in, let’s set the stage: If you’re an employer, you’re likely required to classify your employees according to federal, state and local regulations. We’ll start with the Fair Labor Standards Act (FLSA).

If you’re wondering what the FLSA is, you’re not alone. It’s a federal law that sets standards around minimum wage, child labor and overtime provisions for most US employers and employees. It also maintains the criteria for how to determine whether a worker is exempt or non-exempt. Let’s get into it.

What makes an employee exempt?

The easiest way to think about the difference between exempt and non-exempt employees is this: Exempt employees are typically not entitled to an hourly minimum wage or overtime pay, while non-exempt employees are.

So what exactly makes an employee exempt? Is it just a matter of being salaried? Unfortunately, the answer is a little more complicated. The FLSA uses three major criteria to help you figure out an employee’s eligibility:

1. Salary basis: The employee is paid a predetermined and fixed salary that can’t be reduced because of variations in the quality or quantity of their work.

2. Salary level: Their annual pay totals $35,568 a year, or $684 per week. Beginning on July 1, 2024, this amount will increase to $844 per week, or $43,888 a year. (We’ll get into the details in a bit.)

   The salary level for highly compensated employees (HCEs) will also increase, from $107,432 per year to $132,964 per year. To learn more about HCEs, check the Department of Labor’s website.

3. Job duties tests: The worker is a professional employee and their primary duty involves executive, professional or administrative tasks.

While the first two criteria are fairly straightforward, the third is less black and white. To be considered an executive, professional or administrative employee, workers must:

• Have advanced knowledge of their field

• The ability to exercise independent judgment

• Meet additional criteria as defined by the law

Now that we’ve gone over the criteria for FLSA exemptions and what they mean, the question is — how many of the criteria does a worker need to meet to be considered exempt?

Fitting the bill for just one or two usually doesn’t cut it. For the most part, workers must meet all three criteria to be considered exempt. However, there are special exceptions for retail workers, outside sales employees and first responders. If that sounds like anyone on your payroll, be sure to read the fine print!

What makes an employee non-exempt?

We’ve nailed down what makes an employee exempt. But what about the other side of the coin? There are three key ways to tell if your worker should likely be classified as a covered, non-exempt employee:

1. They receive at least the federal, hourly minimum wage of $7.25 or more and time-and-a-half pay for more than 40 hours worked in a workweek. (That just means they get one and a half times the hourly rate of their regular pay.)

2. They do not meet all three criteria listed above.

3. They’re blue collar employees: According to the US Department of Labor (DOL), manual workers in non-management roles — think carpenters, electricians, mechanics, plumbers, iron workers — likely aren’t exempt due to the nature of their work.

While you might sail through determining who earns an hourly wage vs. who’s a salaried employee, defining job duties can feel like splitting hairs. If you’re worried you might’ve misclassified an employee, consulting a professional in employment law is your best bet.