Employers must understand the legal ramifications of classifying a position as hourly (non-exempt) or salary (exempt) because of associated wage & hour compliance requirements.
Non-exempt and exempt jobs are defined by the federal Fair Labor Standards Act (FLSA) and may also be defined by applicable State laws.
Definition of Hourly (Non-Exempt)
Hourly jobs pay an hourly rate, and minimum wage laws apply to hourly jobs. Employers are required by law to track time and attendance for hourly employees.
The term hourly (“non-exempt”) applies to hourly jobs because these employees must be paid for all time worked, including overtime and double time. As of 2021, most U.S. jobs (55%) are classified as non-exempt. Overtime and double-time eligibility may vary by jurisdiction.
The pay for an hourly job can vary from week to week depending on hours worked, making income management more critical than ever. You need careful budgeting when the hours you work per week vary, as it will affect the number of hours you are paid. The trade-off is that many hourly jobs provide better work-life balance because the work stops when you clock out.
Definition of Salary (Exempt)
It is a common misconception that anyone who is paid a salary or works in an office is an exempt employee under this category. But in fact, that is not true. Under California law, exempt employees
- generally have a white-collar job,
- earn an annual salary rather than an hourly wage, and
- are not entitled to overtime pay.
Five common categories of exempt employees in California are:
- Executive employees
- Administrative employees
- Licensed professionals
- Computer employees
- Outside sales employees
For 2023 in California, exempt employees must earn at least $1,240 a week ($64,480 yearly).
Unlike exempt employees, non-exempt employees are protected by wage and hour laws. This means they are entitled to
- overtime pay as well as
- meal breaks and rest breaks.
In California, you are only an exempt employee if your job duties meet the legal definition under the California Labor Code. State laws vary.
- According to the FLSA, salary (exempt), employees are paid by the week and receive the same amount each pay cycle, regardless of the number of hours worked. Exempt employees don’t receive paid rest periods and aren’t eligible for overtime or double-time pay.
- In California, according to State law, hourly (non-exempt) employees are:
(a) paid for all time worked,
(b) are entitled to overtime pay (1.5x the person’s hourly rate of pay) if they work more than (i) 8 hours per day, (ii) 40 hours per week, (iii) for the first 8 hours of work on the 7th consecutive day of the same workweek,
(c) are entitled to paid rest periods,
(d) are entitled to unpaid meal periods,
(e) are entitled to minimum wage (which may vary by geography),
(f) are entitled to double time (2x the person’s hourly rate of pay) for hours worked: (i) more than 12 hours in a single workday, or (ii) more than 8 hours worked on their 7th consecutive day of work in the same work week.
Hourly vs. Salary: Pros and Cons
There are pros and cons for both hourly and salary jobs; accepting an hourly (non-exempt) role versus a salaried (exempt) role depends on the employee accepting or declining the role. According to the job website Monster.com, “Some employees would rather be employed in nonexempt positions to ensure they’re paid for every hour they work. Others prefer the latitude that comes with salaried positions.”
Salary jobs offer stability in pay and typically (but not always) higher pay, but they often come with unpaid overtime hours. Employers expect exempt employees to work as long as it takes to complete their assigned work, whether it requires 30 hours or 60 hours per pay period, so the number of hours worked or the amount of work completed doesn’t affect the employee’s income.
Hourly jobs can be precarious. Assigned hours may fluctuate weekly and season to season. Non-exempt employees may feel little control over their working hours and fewer options for career advancement. Hourly roles can also be part-time and not offer any benefits unless required by law. Conversely, in Ca., there is an option for paid overtime, paid double time, paid rest periods, and unpaid meal periods.
Disclaimer: This document is for information purposes only and does not constitute legal advice. If you have questions regarding salaried (exempt) status versus hourly (non-exempt) status, please contact your organization’s HR department, or legal counsel in your State.