Understanding the differences between exempt and non-exempt employees is a task no employer can afford to overlook, especially as companies grow and consider international markets. At EWS Limited, we have seen firsthand how the right classification of employees not only helps with payroll accuracy but also avoids significant legal and financial risks. In this guide, we share our perspective, drawing on two decades of expertise, to help you manage your workforce confidently in 2026 and beyond.
Classifying your team correctly under the Fair Labor Standards Act (FLSA) is more than paperwork, it’s a safeguard for your business and your employees. This decision impacts:
Every hour worked, every dollar paid: classification guides it all.
Whether you’re scaling up at home or looking abroad, the FLSA rules around exempt and non-exempt status remain a key foundation. Missteps here can lead to audits, penalties, and disputes that divert leadership energy away from your company’s growth.
The United States Fair Labor Standards Act (FLSA) is a federal law introduced in 1938, setting the national standards for minimum wage, overtime pay, recordkeeping, and youth employment. While states may set higher standards, the FLSA establishes the baseline for employee protections.
Under the FLSA, employees fall into two broad buckets: exempt and non-exempt. The rules for each aren’t flexible, and following them protects both workers and the organization.
If you misclassify a worker, for example, treating a non-exempt role as exempt to avoid overtime, you could face:
For companies considering overseas hires, following an article on global worker misclassification can help prevent even broader risks abroad.
Exempt employees do not receive overtime pay, regardless of how many hours they work in a week. Their exemption from overtime (and, in some cases, minimum wage) is based on the type of work, payment structure, and how much they earn. The FLSA lists specific criteria for each.
To be considered exempt under federal law, employees must:
Several states, such as California, New York, Washington, Alaska, Colorado, and Maine, have set higher thresholds. For instance, in 2024, California’s minimum salary threshold for exempt employees is $64,480 annually, based on a 40-hour workweek. Always check local regulations, as these amounts change often.
Title alone means nothing. The FLSA’s white-collar exemptions are based on the actual duties performed:
Actual responsibilities, not job titles, determine exempt status. Review roles regularly as duties shift over time.
Exempt roles often come with more autonomy and flexibility. There’s less clock-watching: employees can arrange their hours to fit the workload or project. This flexibility invites trust, but it sometimes means evening or weekend hours, all without extra pay. Many managers and professionals value this trust and independence, though younger or new workers may not always expect the demands.
Freedom with responsibility, but no overtime pay.
Non-exempt employees are typically paid hourly and are protected by both the FLSA and additional state rules for overtime and minimum wage.
Non-exempt employees must be paid at least the federal minimum wage of $7.25 per hour, unless their state (or even a city) requires more. Their pay is anchored to actual hours worked, not a fixed weekly amount. They’re owed overtime pay (at least 1.5 times their regular rate) for every hour above 40 in a workweek.
For example, let’s say a non-exempt worker in Colorado makes $16 per hour. After 40 hours, if they work 5 more in the week, those 5 must be paid at $24 per hour (1.5x).
Non-exempt status means accurate, detailed records are mandatory:
Most employers now use payroll software or outsourced providers, like those managed by EWS Limited, to automate these processes and prevent disputes.
Because pay is hourly, and scheduled work is tightly tracked, meal and rest breaks are required by law in some states. For instance, California enforces both meal and rest breaks during the workday for non-exempt staff.
Non-exempt employees receive guaranteed overtime protections and strict wage safeguards. Their schedules may be more controlled, but most appreciate the clear guardrails and defined expectations.
Overtime is earned, never given away.
Given how much is riding on proper classification, employers must go further than surface-level factors.
If there’s doubt, assume the role is non-exempt. Most mistakes happen when employers stretch the definitions without checking current legal guidelines.
While the FLSA is federal law, state rules may increase minimum wage, raise the salary threshold for exemption, or broaden protections. For example:
Always check for periodic changes and apply whichever rule most benefits the employee. Using scalable international HR strategies can help, such as those outlined in our international HR strategy guide.
Your role is to follow the law, keep precise records, and respect worker rights.
For extra clarity, conduct regular compliance checklists like those discussed in our international hiring compliance checklist.
The FLSA sets limits for employees under 18 years old:
Most youth are non-exempt, and their hours and job types must be closely monitored.
Safety and fairness for younger workers come first.
Misclassifying just one worker can trigger penalties. Here’s what typically happens:
International companies face risks in every location. For further reading, see how legal risks of worker misclassification can multiply if you hire abroad.
As your workforce grows, tracking every hour, dollar, and compliance rule can overwhelm your in-house HR team. Software and payroll outsourcing can automate many tasks, offering peace of mind and freeing your people for higher-impact work.
These systems also offer built-in onboarding and benefits administration, as described in our remote employee onboarding guide. For some businesses, using an employer of record or a managed service provider like EWS Limited can relieve the burden of compliance across different states and countries.
The Department of Labor has announced a planned increase in the federal salary threshold for exempt employees. By 2024, the minimum may rise from $684 per week to $1,059 per week ($55,068 annually).
If implemented, this update could move a large number of current exempt workers (especially mid-level managers and professionals) into non-exempt status, making them eligible for overtime. Employers must stay on top of these changes and adjust employee roles, workloads, or pay as needed to stay compliant.
States may also enact their own updates, often with even higher thresholds or narrower definitions for exemptions.
Based on our experience supporting companies of every size, here are proven steps that keep you compliant and team-focused:
Compliance is a habit, not an event.
With more teams working remotely or across borders, classification gets more complex. Remote workers must be classified by the rules of the state (or country) where they actually work. International assignments increase the risk, as both US federal and local laws may apply.
EWS Limited’s expertise in global mobility and company formation helps smooth these transitions. We help clients ensure compliance wherever teams are based, reducing the risk of penalties when scaling internationally.
The differences between exempt and non-exempt employees are not simply about overtime and pay rates. They shape how you structure roles, forecast salaries, and manage legal risk for your business. With proposed changes likely affecting tens of thousands of roles by 2026, keeping up with new laws is a must.
We think staying updated, using smart HR systems, and partnering with experienced consultancies like EWS Limited gives everyone, leadership and staff alike, peace of mind. Want to receive the latest updates, in-depth guides, and resources on remote work and employment law straight from the experts? Subscribe to our newsletter or reach out for a tailored consultation to secure your global workforce and take your business further with confidence.
An exempt employee is someone who is not entitled to overtime pay under the FLSA because their job meets specific duty and salary requirements. Typically, they are paid a set weekly or annual salary above a fixed threshold and work in higher-level professional, administrative, or executive roles. Their work often includes independent judgment and decision-making. They must meet both the job duties test and salary basis test to be classified as exempt.
A non-exempt employee is an individual who is protected by the FLSA’s minimum wage and overtime requirements. They are usually paid on an hourly basis, and must receive at least federal or state minimum wage for every hour worked. For hours over 40 in a workweek, non-exempt employees are entitled to overtime pay at a rate of at least 1.5 times their regular wage. Their work hours, breaks, and pay must be closely tracked and recorded by employers.
Classification depends on three main factors: how much the employee is paid, how they are paid (salary or hourly), and the nature of their actual job duties. Review each role by:
When in doubt, it is safer to classify the worker as non-exempt.
No. Exempt employees are not eligible for overtime pay, regardless of total weekly hours worked. Their salary covers all hours required to complete their job duties, even if this means working over 40 hours in a given week. Overtime requirements only apply to non-exempt positions under the FLSA.
Yes, a non-exempt position can be reclassified as exempt if the job changes to meet all the FLSA exemption criteria: the required salary threshold, salary-basis pay, and exempt job duties. Always review current regulations and make updates following significant role changes or salary adjustments. Reclassification should be documented and, in some cases, communicated to employees in writing.
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