Exempt vs. Non-Exempt Employees: Why It Matters for Overtime

In today’s workplace, understanding whether an employee is classified as exempt or non-exempt under the Fair Labor Standards Act (FLSA) isn’t mere legal jargon—it can significantly affect payroll, labor costs, and compliance. Nowhere is this more important than in Pennsylvania, where both federal and state overtime laws intertwine. 

Misclassifying employees can lead to costly wage claims, back pay, and penalties. This article unpacks the key distinctions between exempt and non-exempt status, how Pennsylvania rules apply, and what employers and employees alike need to know.

What Is the Difference Between Exempt and Non-Exempt Employees?

At the heart of the matter is overtime eligibility. Non-exempt employees—typically hourly workers or salaried employees earning below a federal threshold—are entitled to overtime pay at one and a-half times their “regular rate” for any hours worked over 40 in a week under the FLSA. This applies regardless of whether they’re paid hourly or as a salary, as long as they fail to meet the exemption criteria.

Exempt employees, by contrast, meet specific criteria—typically being paid a salary above a set amount, on a salary basis, and performing qualifying job duties related to executive, administrative, professional, computer, or outside sales roles. These employees are not eligible for overtime under the FLSA.

How Does Pennsylvania Handle Overtime?

Pennsylvania mirrors the FLSA requirement: all covered non-exempt employees must receive overtime pay for hours worked beyond 40 per workweek. Pennsylvania employers must comply with both federal and state law, applying whichever provides the greater protection for the employee. While Pennsylvania generally follows the federal salary threshold for exemptions, the state has considered updates in recent years to expand overtime eligibility, particularly for salaried workers earning lower wages.

How Do Salary Basis and Job Duties Affect Exemption Status?

Being salaried alone does not automatically make an employee exempt. The salary basis test requires that an employee receive a fixed salary not subject to reduction based on the quality or quantity of work performed. The amount must meet or exceed the federal minimum salary threshold, which currently stands at $684 per week as of recent federal updates. Beyond salary, the job duties test is critical. For example, executive employees must regularly supervise at least two full-time employees, have authority over hiring and firing decisions, and primarily perform management tasks. Administrative employees must perform office work directly related to business operations and exercise discretion on significant matters. Professional employees typically require advanced knowledge in a specialized field acquired through extensive education or training.

Why Does the Classification Matter for Businesses?

Accurate classification impacts labor costs, compliance obligations, and potential legal exposure. Misclassifying a non-exempt worker as exempt can result in unpaid overtime claims, liability for back wages, interest, liquidated damages, and legal fees. Misclassification may also prompt audits by federal or state labor departments. Employers must thoroughly analyze each position, ensuring both salary and job duties meet exemption requirements. Businesses that fail to regularly review classifications risk financial consequences that can significantly disrupt operations.

What Are the Common Pitfalls Employers Face?

One common mistake is assuming all salaried employees are exempt. Another is failing to keep detailed time records for salaried non-exempt employees who remain entitled to overtime. Employers may also misclassify employees whose job duties have shifted over time but whose exemption status has not been reevaluated. Additionally, giving titles like “manager” or “supervisor” does not automatically make an employee exempt unless their actual duties align with exemption standards.

Can an Employee Challenge Their Classification?

Employees who believe they have been misclassified may file complaints with the U.S. Department of Labor or the Pennsylvania Department of Labor & Industry. Investigations often involve reviewing job descriptions, payroll records, and actual work performed. If violations are found, employers may be ordered to pay back wages for unpaid overtime, along with additional penalties. Employers should encourage open communication with employees who raise concerns about their pay classification and seek legal counsel to assess potential exposure.

What Steps Can Businesses Take to Stay Compliant?

Employers should conduct regular audits of all job positions, carefully reviewing both job duties and salaries. Written job descriptions should accurately reflect actual responsibilities. Payroll systems must be capable of tracking hours worked for non-exempt employees, even those on a salary. Training managers on overtime policies and ensuring proper documentation can also reduce the risk of misclassification.

Philadelphia Business Lawyers at Sidkoff, Pincus & Green P.C. Offer Legal Support to Businesses

Understanding the difference between exempt and non-exempt employees is critical for every organization. For companies facing classification challenges or seeking proactive guidance, the Philadelphia business lawyers at Sidkoff, Pincus & Green P.C. will provide valuable legal support. Call 215-574-0600 or fill out our online form for an initial consultation. Located in Philadelphia, we serve clients in Pennsylvania and New Jersey, including South Jersey.