What is the difference between exempt and non-exempt employees, and how does it impact payroll?

Exempt and non-exempt employees are classifications based on the Fair Labor Standards Act (FLSA) in the United States. These classifications determine whether an employee is eligible for overtime pay and impact various aspects of payroll and labor law compliance. Here are the key differences and their impact on payroll:

Exempt Employees:

1. Overtime Eligibility: Exempt employees are not eligible for overtime pay. This means that they are not entitled to receive extra compensation for hours worked beyond 40 hours in a workweek.

2. Salary Basis: Exempt employees are typically paid on a salaried basis, meaning they receive a fixed salary regardless of the number of hours worked in a week.

3. Job Duties: Exempt status is primarily determined by the nature of an employee's job duties. To qualify as exempt, employees must generally perform certain types of work, such as executive, administrative, professional, or outside sales roles. These positions typically involve decision-making authority, management responsibilities, or specialized knowledge.

4. Minimum Salary Threshold: In addition to job duties, there is a minimum salary threshold for exempt status. 

5. Pay Consistency: Exempt employees receive a consistent salary regardless of the number of hours worked, which simplifies payroll processing. They do not need to track hours worked or receive overtime pay.

Non-Exempt Employees:

1. Overtime Eligibility: Non-exempt employees are eligible for overtime pay. 

2. Hourly or Salaried: Non-exempt employees can be paid on an hourly or salaried basis. If paid hourly, they must track their hours worked, including any overtime hours, and receive overtime pay accordingly.

3. Job Duties: Non-exempt status typically applies to employees whose job duties are routine, clerical, or primarily involve manual work that does not fall within the exempt categories defined by the FLSA.

4. Recordkeeping: Employers must maintain accurate records of non-exempt employees' hours worked, breaks, and overtime compensation. These records are crucial for payroll compliance.

Impact on Payroll:

1. Overtime Calculation: Payroll for non-exempt employees must include overtime calculations that follow the federal or state overtime laws. Unsure what the overtime laws are in your state(s)? Don't stress! Salsa is here to help with those calculations and keep your employers in compliance. 

2. Salary vs. Hourly: Payroll processing for exempt employees is generally simpler because they receive a fixed salary. Non-exempt employees require more detailed tracking of hours worked, especially if they are paid hourly.

3. Compliance: Employers must ensure compliance with overtime laws and regulations when processing payroll for non-exempt employees. Failure to do so can lead to wage and hour violations and legal issues. But again, don't stress! Salsa is here to help with this. 

It's essential for employers to correctly classify employees as exempt or non-exempt based on their job duties and compensation structure. Misclassification can result in legal and financial consequences. Additionally, keep in mind that labor laws and regulations may change over time, so it's crucial to stay informed about updates that may impact payroll practices.