Overtime Guidelines by the Fair Labor Standards Act (FLSA) on Exempt vs. Non-Exempt

A salaried employee is one who receives a predetermined amount each payday, rather than being paid at an hourly rate for actual hours worked. Some salaried employees are exempt from the overtime provisions of the Fair Labor Standards Act. Others are non-exempt and their compensation is governed by a different set of rules.

Typically a salary disbursement for a pay period is a proportion of an annual amount. For an employee to be considered exempt, the salary must be at least $23,600 per year or $455 per week. If your business pays some employees on a non-exempt salary basis, this restriction does not apply. However, non-exempt employees must receive a salary that works out to at least the federal hourly minimum wage, which was $7.25 per hour as of 2012. In addition, non-exempt employees must be paid time and one-half for hours they work over 40 in a single week.

When you pay an employee on an exempt salary basis, the employee receives full pay as long as she works at least some time during a pay period. On the other hand, she is not entitled to additional compensation for extra time worked, including overtime. Exempt employees can be required to use a time clock and to make up missed time. Employers may charge absences against leave time an exempt employee has accumulated. For an employee to be exempt, his job duties must meet specific requirements as executive, professional or administrative workers. Executive positions must be primarily supervisory. Professional positions include occupations such as doctors, engineers and lawyers. Administrative exempt employees perform primarily management-related, non-manual work.

Read More: The Labor Laws on Exempt Employees Who are Required to Work Over 40 Hours a Week

For non-exempt workers, the employer must state the salary amount and the expected number of hours the employee will normally work. Expected hours are divided into the salary amount to arrive at a regular hourly wage, which is used if it is necessary to calculate and pay overtime. The FLSA does allow employers to reduce the salary of a non-exempt employee for missed work time. However, some state laws prohibit this practice.

Suppose a non-exempt worker is paid $480 per week and is expected to work 32 hours per week. Dividing the expected hours into the salary gives a regular rate of $15 per hour. An employer does not have to pay additional compensation if the employee happens to work 34 or 35 hours in a week. However, if the employee works 40 hours plus two hours overtime one week, the employer has to pay the $15 hourly rate for all 40 hours plus time and one-half for the two hours overtime. In this example, that brings the total pay to $645.