Q. "What’s the difference between exempt and nonexempt and how do we know which to use?"
Answer:
Exempt and nonexempt are classifications under the Fair Labor Standards Act (FLSA), a federal law requiring most employees receive at least minimum wage for each hour worked and overtime pay for hours worked over 40 in a workweek.
Employees entitled to both minimum wage and overtime are called nonexempt, while those not entitled to both are exempt. Any position can be nonexempt. However, if you want to classify a position as exempt, it needs to qualify for one of the exemptions listed in the FLSA.
The most common exemptions are for executive, administrative, and professional employees. But to qualify, each employee must pass a three-part test:
Duties: The employee must actually perform specific tasks and meet specific requirements. Each exemption has its own duties test.
Salary level: The employee must make at least a minimum dollar amount per week, as determined by Department of Labor (DOL) rules.
Salary basis: The employee must be paid the same amount each week, regardless of hours worked or the quantity or quality of their work. Reducing an exempt employee’s pay is only allowed in narrow circumstances.
If an employee meets all necessary criteria, they can be properly classified as exempt. If they don’t, they’ll need to be classified as nonexempt and paid at least minimum wage and overtime when applicable.