Difference Between Exempt and Non-Exempt Employee – Know The Benefits of Distinct Job Types

difference between exempt and non-exempt employee

Salary math has never been that easy. Lists of employees, routine attendance and leave management and many inputs make HR feel stressed out. Also, the company may never have employees with a similar payment structure. Thus it becomes essential to figure out the difference between exempt and non-exempt employees.

Exempt and Non-exempt employments speak of responsibilities an employee has to undertake. Either they are liable for some of the tasks, or they are not. But an understanding of the same is required for the salary calculation. Here’s the fundamental difference between these employment categories.

What are Non-Exempt Employees?

Non-exempt employees are under the protection of statutory laws and must be paid the minimum amount of wages according to the acts. These payments should be calculated based on hourly rate with the condition of 40 hours of work a week.

The positions included in this category are most likely to be non-managerial posts. Because either they are just freshers or not mutually trusted by the employer. Apart from this, these employees receive all the benefits they are liable for without violating rights and wages.

What are Exempt Employees?

Exempt employees are the ones not under the protection of labor laws. Though they can receive various benefits from the company like promotion, performance rewards, etc. not like the ones non-exempt receive from the government. However, the non-exempt employee may not necessarily be promoted or rewarded by the company.

The employees are exempted from fundamental laws of minimum wages and other rights, though they can receive a higher earnings than the Non-exempt employees.

The exempt employees are assigned to the task of a higher level of responsibility, the ones affecting the company’s functions. These encircle the one with Executive, Administrative, and Professional job duties.

Exempt employees are the ones companies trust more, and even they have received specialized benefits from the company just because of their performance. On the other hand, such employee turnover can cost the company a lot of its annual budget.

And while performing the payroll process, one must consider the rules and laws formed by the states and government.

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

Knowing the definition of exempt and non-exempt employees is essential to understand the difference between them for payout with an accurate flow. Whether it is exempt or non-exempt employment, both have many benefits over each other, thus having a lot of diversions. Here are the fundamental causes that differ in both of the employments.

1. Tax Liabilities

Whether it is exempt employees or non-exempt ones, both fall under the tax brackets according to the income level. Though both the job categories offer different types of wages according to the calculation, income is income and is totally taxable according to the tax regimes formulated.

2. Overtime Implications

Exempted employees are never asked to complete the total working hours; instead, they are expected to complete the assigned tasks regardless of time. Such employees are not offered the extra time to put into the tasks.

On the contrary, non-exempt employees who are protected by the laws must be offered the overtime hours they have worked extra, despite working 40 hours or specified by the company.

3. Employees’ Rights

As the non-exempt employees are protected from wage violations and other breachings, the workers have the right to ask for equal opportunity and wages, minimum wages, a safer workplace, etc. And thus employers are liable to consider the same before hiring the candidates.

Though being not protected, the exempted employees can receive the conditions of equal rights. Somehow such employees with more important tasks are provided with a similar amount of benefits as that of the non-exempt employees.

4. Employees’ Benefits

Though non-exempt and exempt employees are treated with similar benefits, the actual criteria may change according to the company requirements.

Due to the exceptional performance output of the exempt employees, the company may or may not offer extra benefits like rewards, statutory benefits, etc. But they are not bound to the permanent benefits that non-exempt employees receive.

On the other hand, non-exempt employees must receive statutory benefits like Provident fund, ESI, Professional Tax, etc.

5. Employee Payout

The fundamental understanding of exempt and non-exempt employees is essential for calculating payout. Here the salary pay is different for both types. Thus the employer must know about the type of employment the employees are in.

As we discussed above, exempted employees have specific tasks to fulfill in a day, and thus they must be paid according to the salary and not the hourly wages.

Then some employees who are asked to fulfill certain hours a week, thus receiving hourly wages. These are the non-exempt employees.

6. Unemployment Implications

According to the government administration, both exempt and non-exempt employees must receive similar unemployment benefits. Both employment categories qualify for such benefits but on the provision of certain regulations.

In 2005, the central government introduced RGSKY – Rajiv Gandhi Shramik Kalyan Yojna providing insurance and benefits to the employee who lost the job due to permanent disablement or retrenchment.

In case the employee resigns from the job without any cause (for example, if the company is struggling financially or due to lack of skills) and meet the requirement of salary earned, such employee must be paid the unemployment benefits

7. Job Responsibilities

When we talk about job responsibilities, both the employments comprise different tasks and positions to handle.

As for the exempted employees, the company relies on them for most of their responsibilities like managerial, administrative, technical, and other duties. Such job responsibility affects the company’s status and thus is given to the most trusted ones. Even under such positions, the employee may have to handle other junior employees’ tasks.

While the non-exempt employees are offered the less responsible and non-managerial positions that require fewer responsibilities.

How to Choose Between Exempt and Non-exempt Employment?

The typical criteria convey that many candidates head towards non-exempt employment as it provides security and fair law regulations of gaining hourly wages. But again, they have to fulfill the criteria of attendance management and time regulations to receive the exactly specified hourly rate.

On the contrary, the exempt employees have a liberal environment of coming and leaving the office. But they are required to complete the tasks assigned despite coming early and going late.

For a matter of time rules, non-exempt employees are closely monitored for their punch in and out and are offered only a restricted amount of break. While the exempt employees, even after spending most of their time around the tea stalls will never incur the boss’s agony.

While considering salary, exempt employees can receive more payment regardless of their in/ out and other breaks. On the other hand, though non-exempt employees are in the safer hands of the government, they can be offered the hourly minimum wage and not more than that. Thus many companies believe that more work equals more payment.

Moreover, exempted employees have a significant advantage over non-exempted ones. As they complete the tasks regardless of the time and bring more profitability, the company may protect them more due to their experience and importance, which may not be the case for non-exempted ones.

Concluding all the pros and cons, we can say that more professional and experienced people can choose exempted jobs, while the freshers can choose non-exempted jobs.

To conclude the difference between exempt vs non-exempt employees, consider this:

Exempt Employees Non-Exempt Employees
Less protection from the government, but the company safeguards them due to job responsibilities More protection from the government
Can be offered more or less according to their work Minimum wage offered
No restriction over the working hours Time and attendance punctuality required
Can take breaks without igniting boss’s anger Limited breaks are allowed as per company policy
Must complete the tasks in the stated time regardless of where they invest their time No restriction on completing tasks
All the managerial, technical, and professional tasks are given No major responsibilities are given
They may not receive government benefits but may receive rewards from the company Benefits according to the state regulations are offered
Tax is deducted as per the government rates Tax is deducted as per the government rates
The job affects the ups and downs of the business highly The job has less effect on the business
Equal unemployment benefits Equal unemployment benefits

Summing it up

After analyzing the difference between exempt and non-exempt employment, you must have identified that it becomes essential to note it. Because majorly during the payroll computation, the employer should know their exempt and non-exempt employees to dodge the invasion of charges.

The situation of whether to choose exempt and non-exempt employment is also perplexing. Both have specific benefits and drawbacks, but this can be solved by analyzing the need and time requirements. Thus whether you are an employee or employer, it is better to explore the job categories for beneficiary purposes.

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