In the United States, exempt and non-exempt are employee classifications provided for by the Fair Labor Standards Act. These classifications are individually determined and must be applied to each person working in a business or organization. During the classification process, elements such as an employee's occupations, duties and salary are considered. Exempt or non-exempt status determines whether an employee is eligible to receive overtime pay or not.
All employees who earn $100,000 or more each year are automatically classified as exempt. However, for lower-earning employees to be considered for exempt status, they must earn at least $455 each week or $23,600 each year. They must also be paid on a salary, not hourly, basis. On the other side of the spectrum, non-exempt employees typically earn less than $455 each week or $23,600 each year, and are paid on an hourly basis. However, an employee's duties are the most important determining factor for exempt or non-exempt status.
Generally speaking, exempt employees are executives, managers and other high-level employees, while non-exempt employees perform more routine positions with lesser amounts of responsibility. More concretely, exempt employees usually supervise other employees; have authority over hiring and firing employees, assigning work and determining how the work is to be performed; make independent decisions; set budgets; manage and monitor the whole business or just a specific department; and assume responsibility for implementing workplace safety and legal compliance issues.
Employees in some professional occupations are automatically considered exempt employees. This applies to doctors, lawyers, architects, engineers, teachers and other intellectual-type professions that automatically require advanced degrees or specialized education. In addition, some high-level administrative positions are also considered exempt occupations when the employee has significant authority to make decisions that impact the business.
Businesses are required to keep accurate time sheets or records for their non-exempt employees; they are not required to do so for their exempt employees, but they may do so if they wish. Non-exempt employees are required to be paid for the actual hours they worked as well as any overtime. Businesses may mandate that employees ask permission before working overtime, but whether permission was requested and granted or not, the employees must still be paid for all overtime worked. No matter how many hours an exempt employee works, the business is only responsible for paying the base salary and any other obligations such as bonuses or commissions. Exempt employees cannot earn overtime pay.