The Exempt vs. Nonexempt Debate

A: Ah, the exempt vs. nonexempt debate — it might seem like choosing between different flavors of ice cream, but there are legal ramifications!

Here’s the scoop: The Fair Labor Standards Act (FLSA) exists to establish basic rights and protections in the workplace. It sets the rules for minimum wage, overtime pay, accurate record-keeping of hours, and other national workplace standards.  

When we say an employee is exempt, we mean they’re exempt from FLSA protections, like overtime pay. There are certainly perks that come with exempt status (they usually earn more than hourly employees), but it can also mean longer work hours.  

To qualify as exempt, your employee’s new role will need to pass a three-factor test:

1. Is the salary high enough? The Department of Labor (DOL) has set a minimum, currently at $684 per week (read on for upcoming changes!)

2. Is the employee’s pay consistent? Exempt folks usually get the same paycheck regardless of hours worked, whether it be 5 hours or 50 hours a week.

3. Do the duties qualify? There are specific job functions that can qualify someone for exemption, like managerial tasks or creative work, and a high level of independent judgment.  

If every single one of these boxes is checked, you can promote your team member and classify her as exempt. But if even one factor isn’t met, this employee should remain classified as nonexempt and would still be entitled to all FSLA protections.  

Take care: misclassifying employees can land you on the hook for unpaid wages for overtime work, fines, penalties, and even attorney’s fees. It’s crucial to get it right. If you’re concerned about it, you can classify an employee as nonexempt, even if you think they meet the three-factor test.  

And heads up! Changes are on the horizon. The Biden administration recently announced increases to salary threshold. These changes could very well NOT happen (like the last time the DOL tried to increase the amount in 2016). In fact, the new rule was challenged mere hours after it was announced.  

Should the final rule go into effect, it will be on a schedule:

• July 1, 2024: Salary threshold increases to $844/week ($43,888/year)  

• Jan 1, 2025: Salary threshold increases to $1,128/week ($58,656/year)

• July 1, 2027: Salary threshold will be updated every three years  

These changes may not only impact the employee you’re promoting (her new salary will need to be at the increased salary threshold by July 1 to remain exempt), but could affect your entire team. Stay tuned!