A nonexempt employee is a worker who is entitled to earn at least the federal minimum wage and qualify for overtime pay, which is calculated as one-and-a-half times their hourly rate for every hour they work above and beyond a standard 40-hour workweek. Nonexempt employees are generally hourly rate employees who must be paid an overtime rate of 1.5 times their hourly rate. In contrast, exempt employees are not entitled to overtime pay and are exempt from certain protections under the Fair Labor Standards Act (FLSA), a federal law that sets minimum wage and overtime requirements.

To classify an employee as exempt, employers generally must apply the following three-pronged test:

• Salary level: Earnings are at least $684 per week or $35,568 per year.
• Salary basis: Payment is provided regularly and at a fixed rate proportionate to the annual salary regardless of the total hours worked.
• Duties: The employee is assigned tasks consistent with those performed in the administrative, professional, executive, computer, or outside sales fields.

If employees are nonexempt, it means they are entitled to minimum wage and overtime pay when they work more than 40 hours per week. Nonexempt employees may be paid on a salary, hourly, or other basis. In California, jobs that pay less than $58,240 a year are generally classified as nonexempt.

It is important for employers to classify their employees correctly as exempt or nonexempt to avoid costly compliance violations.