When you're starting to hire employees as an entrepreneur or small business owner, you may be uncertain how to compensate your employees. Most likely, you've done your research and decided on a ballpark figure of what you'd like to pay each employee, but you may be getting bogged down in different employee classifications. You can make your employees non-exempt or exempt. We'll define each of these terms for you, and how it impacts employee payment.
Nonexempt Employees
These employees are classified as nonexempt because they aren't exempt from the Fair Standards Labor Act. In all states, this means your employee is entitled to overtime pay at 1 1/2 times their hourly wage if they work over 40 hours a week. Additional rules apply in certain states, and generally speaking these employees are entitled to a break after a certain number of hours working.
If you hire non-exempt employees, be certain to carefully calculate their overtime pay to avoid running into legal difficulties. You'll also need to keep in mind that it's usually illegal to compensate for overtime with comp time instead of additional pay.
Nonexempt Employees
These employees are classified as nonexempt because they aren't exempt from the Fair Standards Labor Act. In all states, this means your employee is entitled to overtime pay at 1 1/2 times their hourly wage if they work over 40 hours a week. Additional rules apply in certain states, and generally speaking these employees are entitled to a break after a certain number of hours working.
If you hire non-exempt employees, be certain to carefully calculate their overtime pay to avoid running into legal difficulties. You'll also need to keep in mind that it's usually illegal to compensate for overtime with comp time instead of additional pay.
When to classify employees as nonexempt: Typically, this classification works best for employees who need to be on site for specified hours. For example, use this classification for a receptionist or janitor who works a set schedule. Also, keep in mind that as of December 1, 2016, you must classify any employee who makes less than $913 per week as non-exempt.
Exempt Employees
Unlike non-exempt employees, these employees are exempt from the FSLA. Exempt employees make the same salary regardless of how many hours they work in a week. For example, an exempt employee may leave early one week for a doctor's appointment, and the next week stay late to cover an emergency, but both weeks will earn the same paycheck. Exempt employees also aren't legally entitled to breaks.
Employees must make at least $913 a week to qualify for the exempt classification. Keep in mind that you must be prepared to prove to the IRS that your exempt employees qualify.
When to classify employees as exempt: Typically, this classification is used for professional positions, such as managers, administrators, and other white-collar professionals, who work unpredictable hours and often independently.
Need help understanding the full implications of how to classify your employees? Contact us to get started with our bookkeeping and payroll services.
Exempt Employees
Unlike non-exempt employees, these employees are exempt from the FSLA. Exempt employees make the same salary regardless of how many hours they work in a week. For example, an exempt employee may leave early one week for a doctor's appointment, and the next week stay late to cover an emergency, but both weeks will earn the same paycheck. Exempt employees also aren't legally entitled to breaks.
Employees must make at least $913 a week to qualify for the exempt classification. Keep in mind that you must be prepared to prove to the IRS that your exempt employees qualify.
When to classify employees as exempt: Typically, this classification is used for professional positions, such as managers, administrators, and other white-collar professionals, who work unpredictable hours and often independently.
Need help understanding the full implications of how to classify your employees? Contact us to get started with our bookkeeping and payroll services.
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