Exempt employees are workers who aren't entitled to a 40-hour work week. Under federal law, these employees are exempt from the Fair Labor Standards Act (FLSA), which sets minimum wages, maximum hours and workers' rights to overtime. Nonexempt employees are covered by the law. The government bases employee exemptions on the way workers are paid and the job duties their employer gives them.
Employees who earn less than the minimum set by the federal government are automatically covered by the FLSA. Above the minimum, they're exempt if they're paid a salary -- a guaranteed amount for each week of work -- rather than paid based on how many hours they work. If you reduce an employee's pay because she left early or didn't complete her week's work, she's not exempt. You can require an employee to punch a time clock or work a set schedule without affecting her exempt status.
If your employee's pay meets the salary tests, he still has to pass the job duties test before you can exempt him from the FLSA. The act doesn't cover employees whose primary responsibilities include executive duties such as hiring, firing, supervising and managing other employees. Professionals such as doctors, attorneys, teachers, writers and engineers are exempt. Administrators -- employees who make significant business decisions -- are also not covered by FLSA. The act identifies a few jobs, such as outside salespeople, that are exempt regardless of the salary and duties test.
The text of the FLSA specifically excludes some jobs from coverage under the act -- for example, movie theater workers and most agricultural workers. Jobs such as railroad workers, whose compensation and hours are regulated by other federal laws, also fall outside the FLSA rules. Workers excluded from the FLSA may be subject to state laws on compensation, overtime and workers' rights, however, so make sure to check that your company's policies conform to state requirements.
Determining which employees are exempt can require a detailed look at job conditions. An employee whose salary is based on an hourly wage can still be exempt if the week's salary doesn't drop because she leaves early one day. A shift worker who's in charge for an hour while the boss goes out for lunch doesn't pass the duties test if she has no authority the rest of the time. The law looks at the total job circumstances rather than occasional situations.