What is a Non-Exempt Employee?

A non-exempt employee is entitled to overtime pay under U.S. federal labor laws.

The Fair Labor Standards Act (FLSA) grants protections to non-exempt employees that include minimum wage and overtime pay (1.5x hourly rate) for hours exceeding 40 per workweek. Classification depends on job duties, earnings, and payment structure, not solely whether an employee is hourly or salaried. Misclassifying non-exempt workers as exempt can lead to legal penalties and back pay claims.

Key criteria include:

FLSA coverage. Guarantees minimum wage and overtime eligibility.
Overtime pay. Required for all hours exceeding 40 per week, regardless of salaried status.
Payment flexibility. Can be hourly or salaried, but earnings below $684 per week (as of 2024) typically classify roles as non-exempt.

Unlike exempt roles, non-exempt employees aren’t subject to the duties tests, though some states impose additional rules. For global teams, non-exempt equivalents vary by location. For example, the EU mandates overtime pay but often lacks salary thresholds. Employers must align classifications with local regulations to avoid noncompliance.

Non-exempt vs. exempt: Key differences

Understanding the distinction between non-exempt and exempt employees helps employers comply with labor laws and manage payroll tax effectively. Below is a comparative overview of their core differences:

Category	Non-exempt Employee	Exempt Employee
Overtime eligibility	Eligible for 1.5x pay after 40 hours	Not eligible
Time tracking required	Yes	Usually not required
Pay type	Hourly or salaried	Typically salaried
Job duties	No duties test applies	Must meet FLSA exemption categories
Salary threshold	No minimum salary requirement	Minimum $684/week (federal)
Legal protections	Covered by FLSA overtime rules	Excluded from FLSA overtime rules

Non-exempt employees are entitled to overtime pay regardless of whether they’re hourly or salaried, provided their earnings fall below the federal threshold. For example, a salaried customer service representative earning $600 per week would qualify for overtime. Exempt employees, however, must meet strict salary and duties criteria—such as managing teams or exercising independent judgment—to forfeit overtime eligibility.

Time tracking is critical for non-exempt roles to ensure accurate overtime calculations, while exempt employees often have more flexibility in scheduling. Misclassification risks—labeling a non-exempt worker as exempt without meeting the duties tests—can lead to back pay claims or fines. Globally, these distinctions vary; some countries tie exemptions to job titles rather than salary, requiring localized compliance strategies.

By aligning classifications with FLSA standards and regional laws, employers mitigate legal risks and maintain fair compensation practices.

Employer responsibilities for non-exempt employees

Employers must adhere to strict guidelines when managing non-exempt workers to ensure legal compliance and fair compensation. Below are key obligations:

Track and record all hours worked

Non-exempt employees’ hours—including overtime, breaks, and off-the-clock work—must be meticulously tracked. The FLSA mandates that employers maintain records for at least three years, detailing daily/weekly hours, pay rates, and overtime calculations. Automated timekeeping systems reduce errors; however, manual logs are acceptable as long as they are accurate.

Ensure accurate and timely overtime pay

Federal law requires 1.5 times pay for hours exceeding 40 hours per week, but states like California and Alaska enforce daily overtime rules (e.g., 1.5 times after eight hours per day). Employers must apply the stricter standard (federal or state) and process payments promptly to avoid wage claims.

Follow state-specific wage laws

State regulations vary:

California. Two times pay after 12 hours per day.
Colorado. Overtime starts at 12 hours per day.
Minnesota. Weekly overtime begins at 48 hours.

Regularly review local laws, especially for multistate teams.

Maintain detailed records for audits

Keep records of:

Hours worked per day/week.
Total wages, including overtime.
Deductions or additions to pay.

These documents defend against disputes and streamline audits.

Communicate break and hour limits

Non-exempt employees are entitled to rest periods (e.g., 10 minutes for every four hours in California) and meal breaks. Clearly outline policies in handbooks and training materials to prevent violations, such as missed breaks or unauthorized overtime.

Avoid converting exempt employees to non-exempt

“While exempt employees are not entitled to overtime, employers must be careful not to violate the FLSA’s strict exemption rules,” advises Brian D. Spitz, founding and managing attorney at Spitz, a firm specializing in employment law. “If an employer makes mistakes, they can accidentally turn an exempt employee into a non-exempt worker, triggering overtime obligations.”

Spitz highlights several common mistakes that can jeopardize exempt employment status:

Partial-day pay deductions. Reducing salaries for partial-day absences invalidates the salary basis test.
Performance-based pay cuts. Adjusting salaries based on productivity or hours worked.
Excessive time tracking. Requiring exempt employees to clock in/out like non-exempt staff.
Duty shifts. Assigning routine tasks that fail the FLSA duties test (e.g., managerial roles doing manual labor).
Inconsistent exemptions. Selectively paying overtime to some exempt employees but not others.

“Many companies make critical errors that unintentionally strip employees of their exempt classification,” Spitz adds. “Because FLSA exemptions depend on specific legal tests, it can be difficult for employees to recognize when their employer has improperly classified them.”

FAQ: Non-exempt employees

Understanding non-exempt classification is essential for compliance and avoiding costly penalties. Below are answers to common questions employers encounter when managing non-exempt teams:

Can a salaried employee be non-exempt?

Yes. Salaried employees remain non-exempt if they fail to meet all three FLSA exemption criteria: earning below the federal threshold ($684 per week as of 2024), lacking exempt-level duties (e.g., managerial tasks), or having salaries adjusted for productivity. For example, a salaried entry-level analyst earning $600 per week would still qualify for overtime.

Do non-exempt employees have to clock in and out?

Federal law doesn’t mandate specific timekeeping methods, but employers must accurately record all hours worked. Many states require detailed records, and tools like digital time clocks or software help prevent errors. Without reliable tracking, employers risk underpaying overtime and facing disputes.

What happens if I misclassify a non-exempt employee as exempt?

Misclassification can lead to back pay claims for unpaid overtime (often spanning years), fines up to $1,000 per violation, and audits by the Department of Labor. Repeated violations may also result in lawsuits or reputational harm. Regular audits and legal reviews help mitigate these risks.

Can non-exempt employees work flexible schedules?

Yes, but employers must still pay 1.5 times the regular rate for hours worked over 40 in a week. Some jurisdictions enforce daily overtime rules (e.g., after 8 hours per day), so employers should align their schedules with regional laws. Flexibility is permissible as long as overtime is accurately tracked and compensated.

Velocity Global provides compliance with confidence

At Velocity Global, our Employer of Record (EOR) solutions simplify global workforce management by automating compliance with FLSA and international labor laws, ensuring the accurate classification of exempt and non-exempt employees. Our Global Work Platform™ centralizes payroll, benefits, and time tracking. Simultaneously, our local experts adapt to regional regulations—such as overtime thresholds in the EU or salary basis tests in Asia—reducing misclassification risks. We minimize legal exposure and streamline HR operations, letting employers focus on strategic growth without compliance bottlenecks. Contact us to learn more.

This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided “as is,” and no representations are made that the content is error-free.