Employee Classifications: Exempt vs. Non-exempt & Hourly vs. Salary

Correctly classifying your employees isn't just a matter of policy—it's the law. Understanding the differences between salary vs. hourly pay and exempt vs. non-exempt employee status helps your business stay compliant with wage and hour rules under the Fair Labor Standards Act (FLSA). It also helps you manage compensation expectations, work schedules, and employee morale.

Let’s break it down simply.

What Is the Difference Between Exempt and Non-Exempt?

Under the FLSA, most employees fall into two main categories: exempt and non-exempt. This classification affects whether a worker is entitled to overtime pay and minimum wage protections.

• Non-exempt employees must be paid at least the federal minimum wage and receive overtime pay (time and a half) for any hours worked over 40 in a workweek.

• Exempt employees are not eligible for overtime pay. (“Exempt” from overtime) To qualify as exempt, employees must meet certain criteria:

• Be paid on a salary basis

• Earn at least $684 per week (as of 2025)

• Perform specific job duties in executive, administrative, or professional roles

This framework is often referred to as the exempt vs non-exempt FLSA standard.

Pros and Cons of Exempt Employees

Exempt employees are usually salaried, and their schedules may be more flexible. However, they aren’t entitled to overtime pay—even if they work well beyond 40 hours in a week.

Example: A salaried construction supervisor works late nights preparing for a new commercial site. The employer doesn't owe extra pay, but the job requires a certain level of autonomy and professionalism.

Pros:

• Consistent paycheck

• No need to track hours

• Often eligible for full benefits

Cons:

• Unpaid overtime

• Risk of burnout if workload isn’t managed

Pros and Cons of Non-Exempt Employees

Non-exempt employees, by contrast, are typically paid hourly and receive overtime for extra hours worked. Their hours are carefully tracked. If they don’t work scheduled hours, they typically won’t be paid for that time—unless they use accrued paid time off, such as sick leave or vacation. Many employers offer paid sick time, either voluntarily or as required by state or local law.

Pros:

• Guaranteed overtime pay

• Clear boundaries around work hours

Cons:

• Must track their hours or clock in and out

• Less flexibility in scheduling

This category works well for roles that involve routine tasks or set hours, such as customer service representatives or retail associates.

Salary vs. Hourly: What’s the Difference?

Now let’s tackle salary vs. hourly, which often, but not always, aligns with exempt and non-exempt status.

• Salaried employees receive a fixed amount divided into regular pay periods throughout the year.

• Hourly employees are paid based on the actual number of hours worked.

While salaried positions are often exempt and hourly ones are non-exempt, that's not a hard and fast rule. Salaried workers who don’t meet the FLSA exemption criteria would be non-exempt. Similarly, some hourly roles may be exempt in specific industries or circumstances.

Benefits of Salary vs. Hourly Pay Models

Each compensation structure comes with trade-offs. The benefits of salary vs. hourly arrangements depend on the employee’s needs and the nature of the role.

Salary benefits:

• Predictable income

• Often includes benefits like PTO and insurance

• Easier budgeting for the employer and the employee

• May include performance-based or year-end bonuses—even for exempt employees—especially in roles tied to productivity, leadership, or project delivery

Hourly benefits:

• Paid for every hour worked

• Easier to earn extra income through overtime

• Often preferred for part-time or seasonal roles

Which Is Best? It Depends on the Role

There’s no one-size-fits-all answer. In the construction and skilled trades, the right classification depends on the nature of the work, the level of responsibility, and the structure of compensation.

Examples:

• A journeyman electrician (non-exempt, hourly) is paid for every hour worked on the job and receives overtime pay for work exceeding 40 hours per week. This is standard across most trade roles.

• A construction laborer (non-exempt, hourly) works a set schedule and logs time daily. Overtime pay is required under FLSA rules.

• A site foreman or construction supervisor (exempt, salaried) oversees job crews, manages work schedules, and is paid a consistent salary regardless of hours. If they meet the executive exemption criteria, they may legally be classified as exempt.

• A salaried maintenance technician who doesn’t supervise others or meet the FLSA job duties test (non-exempt, salaried) must still receive overtime pay if they work more than 40 hours in a week.

In most construction and field-based jobs, non-exempt and hourly classifications are the safest and most appropriate choice. This approach helps construction employers comply with labor laws and avoid penalties for misclassification.

Salaried or exempt roles may apply to supervisory or administrative staff, provided they meet the FLSA requirements.

Understanding the intersection of employee classification and pay type helps businesses staff their teams wisely and stay compliant.

Avoiding the Pitfalls of Misclassification

Misclassifying an employee—whether intentionally or not—can cost your business.

If an employee is treated as exempt but doesn’t meet FLSA exemption standards, you may owe back pay, damages, and fines. The same applies to classifying a worker as salaried when they’re actually non-exempt and hourly under the law.

It’s also worth noting that classification isn’t forever. You can reclassify employees if their job duties or compensation structure changes. Regularly reviewing job descriptions and pay can help you avoid trouble.

Final Thoughts

Correctly navigating exempt vs. non-exempt employee rules and choosing between salary vs. hourly pay models helps you, the employer, comply with labor laws, manage payroll costs, and support your team.

If you’re interested in learning more about compensation rules for either “white-collar” or “blue-collar” positions, this fact sheet from the U.S. Department of Labor is helpful.

Connect with us at JLS Accounting if you’re unsure how your roles align under the exempt vs non-exempt FLSA framework. Getting it right the first time—and adjusting when necessary—protects both your business and your people.