Even if your workers may not enjoy the idea of being informed they must put in more than 40 hours each week, it is still lawful to make such a demand. Having the majority of your paid staff work more than 40 hours per week is really not prohibited by any federal legislation. These workers are referred to as exempt employees. Understanding what an exempt employee is, how they vary from nonexempt employees, and what you may lawfully demand of these individuals is essential for you as an employer.
Also Read: Self-Employed? Everything You Need to Know About Taxes
What is an exempt employee?
Employees who are excluded from the Fair Labor and Standards Act are not covered. So, “exempt” really refers to “FLSA-exempt.” As a result, an exempt employee is not entitled to overtime compensation and, in certain cases, minimum wage. It may seem difficult to determine who is an exempt employee, but it’s simpler than you may think.
Exempt vs. nonexempt employees
Although not all paid workers are exempt, all exempt workers are salaried. On the other hand, every hourly worker is a nonexempt individual. The FLSA or the state minimum wage, whichever is greater, must be at least met for them to be eligible for overtime compensation and pay rates. For the majority of paid workers, the FLSA does not enforce these rules.
How many hours must an exempt employee work per week?
The FLSA does not apply to the employment of exempt employees, thus their weekly working hours are not regulated. As an employer, you are not required to change how much you must pay your exempt workers whether they work 40, 20, or 70 hours a week. Although you should naturally take into account the differences between full-time and part-time workers, an employee’s hours of work have no effect on whether they are exempt from the overtime rule.
What does the FLSA consider an exempt employee?
An employee must pass each of the three exempt status standards set out by the Department of Labor (DOL) in order to be designated as such.
The salary level test:
A salaried employee must receive at least $684 per week, or $35,568 annually, in order to qualify for exemption. Any workers you pay less for are not.
The salary base test:
Your employee must maintain their exempt status in order for their pay to never be reduced, not even as a consequence of subpar work.
The duties test:
The duties test states that in order to be exempt, employees must hold positions in the executive, administrative, professional, computers/systems, or outside sales sectors. Even if your employee’s job title omits these terms, this test still applies since their duties come first, not their title.
Despite these three clear guidelines, figuring out exception might be challenging. For instance, it’s quite typical for businesses to mix up exempt employees with paid workers. These guidelines demonstrate that the two are not mutually exclusive and that the DOL does not have exempt-status requirements for weekly hours worked.
What are the pros and cons of hiring exempt employees?
It’s crucial to comprehend the benefits and drawbacks of having exempt individuals on staff before deciding whether to recruit exempt or nonexempt workers.
Pros of hiring exempt employees
You don’t have to pay overtime.
No of how many hours exempt workers work each week, you won’t have to pay them overtime. The pay of exempt workers is not affected by the amount of time they put in. On the other hand, when nonexempt workers work more than 40 hours a week, you often have to pay them 1.5 times their regular pay rates.
You can assume they’re more experienced.
Exempt workers often have a higher level of knowledge than nonexempt employees, which is viewed as a vital company advantage these days. If you’re seeking for highly qualified staff, going the exempt route can be your best option.
You can give them more responsibility.
You’ll depend on exempt workers to keep your firm running during times of stress before important events like mergers, conferences, and seasonal deadlines. These workers are not simply the foundation of your company, but you may conceivably ask them to put in more hours without charging them more money.
Cons of hiring exempt employees
You might have to pay them more.
Exempt workers are never paid overtime, but they will probably cost you more than nonexempt staff. That’s because exempt workers often seek more compensation since they’re expected to do tasks with high levels of responsibility and are thus more experienced. These wages could be more than what you would pay nonexempt workers for their total regular and extra hours.
You can’t deduct pay for hours not worked.
Let’s imagine you base the compensation of your exempt workers on the premise of a 40-hour workweek. You cannot take money from an exempt employee’s compensation for hours not worked, even if you discover they frequently work less than 40 hours each workweek. To put it another way, you could sometimes compensate exempt workers for hours they don’t work.
What else should employers know about exempt employees?
The following three factors should be taken into account while hiring exempt personnel:
1. Seasonal employers and FLSA exemption
The FLSA and exemption regulations may apply differently to you if you operate a seasonal business. If your business meets one of these requirements, the FLSA may not apply to it at all:
- No more than seven months a year are spent operating your business. Operation does not include months in which your business just concentrates on maintenance, internal operations, or supply orders.
- The 33.3% exam is passed by you. Your business’s average monthly receipts for any six months of the year must be more than 33.3% of its average monthly receipts for the other six months of the year in order to pass this test.
If you’re seasonal business satisfies one or both of these requirements, none of your workers are covered by the FLSA.
2. Exempt employee pay for time off
Exempt workers often get paid time off, but they may also be governed by any unpaid time off policy you establish. Unpaid time off regulations, however, only permit pay withholding for whole weeks without work and do not permit you to deduct from an exempt employee’s salary for hours not worked within a workweek.
3. Exempt employee unpaid suspension
You may not have to pay exempt workers whom you suspend, just as the FLSA permits employers to provide employees unpaid time off. You may suspend an exempt worker without pay if they violate a key corporate rule that might lead to their ultimate termination.