Non-Exempt Employee

In a globally connected workforce, understanding employee classifications isn’t just a matter of payroll – it’s a compliance essential. The term “non-exempt employee” carries significant legal, financial, and operational implications under the Fair Labor Standards Act (FLSA). For growing companies or global employers using services like PamGro’s Employer of Record (EOR) platform, misclassifying employees can lead to serious penalties and back pay issues. Let’s break down what non-exempt really means, how it differs from exempt status, and why getting this right matters for every HR leader.

A non-exempt employee is a worker covered by the Fair Labor Standards Act (FLSA) who is legally entitled to minimum wage and overtime pay protections.

 

Unlike exempt employees, they must receive at least the applicable federal or state minimum wage and are eligible for overtime pay at 1.5 times their regular rate for all hours worked over 40 in a workweek. These rules ensure fair compensation for hourly and certain salaried workers whose roles do not meet exemption criteria under the FLSA.

Unlike exempt employees, their hours must be tracked, and employers must maintain accurate records. For businesses expanding across borders or hiring through EOR providers like PamGro, proper classification safeguards against payroll disputes and compliance risk.

An exempt employee is a worker who is considered exempt from overtime or minimum wage protections under the FLSA. They “qualify” for exemption by meeting three key tests:

• Salary Basis Test: They’re paid a consistent salary, not hourly.

• Salary Level Test: They earn above the federal threshold ($684 per week).

• Duties Test: Their primary duties are executive, administrative, or professional.

For example, a marketing director or finance manager typically qualifies as exempt, while an administrative assistant or technician would not.

Neither status is “better”—it’s about correctness and compliance.

• For employees: Non-exempt status means protection and overtime pay.

• For employers: Exempt classification can simplify payroll but carries misclassification risk if not justified.

Businesses using PamGro’s global compliance and payroll management solutions avoid this dilemma by ensuring job roles are properly aligned with labor laws—whether hiring in Texas, Toronto, or Tokyo.

There’s no minimum salary requirement for non-exempt employees. Instead, the law mandates minimum hourly wages—$7.25/hour federally, though many states (like California and Washington) require higher.

For exempt employees, the minimum salary threshold is $684 per week ($35,568 annually). (U.S. Department of Labor)

Non-exempt workers can be paid hourly or via salary—as long as total compensation meets wage and paid overtime requirements. Employers operating globally must also meet local wage floors and working hour limits, which vary by country.

Yes. Being paid a salary doesn’t automatically make someone exempt. A salaried employees who is non-exempt still tracks hours worked and earns overtime pay when applicable.

For instance, an office coordinator earning $40,000 per year but lacking administrative decision-making authority may still qualify as non-exempt. Companies using PamGro’s payroll administration services can ensure salaried non-exempt employees receive overtime correctly—preventing wage claim risks.

Non-exempt employees are paid for all hours worked, including overtime beyond 40 hours per week. Payment methods may include:

• Hourly wage: Most common (time and attendance tracked)

• Salaried basis: With overtime calculated from a converted hourly rate

• Piece-rate or commission-based: Still subject to minimum wage and overtime laws

Employers must maintain accurate records of hours worked and overtime calculations.

Quick Fact:

FLSA violations often stem from miscalculating overtime for salaried non-exempt employees—a compliance risk mitigated by automated payroll systems like those offered through PamGro’s EOR model

Classification depends on three key tests established by the DOL:

1. Salary Basis Test: Employee is paid a fixed salary.

2. Salary Level Test: Salary meets or exceeds $684 per week.

3. Duties Test: Primary responsibilities are executive, administrative, or professional in nature.

Employers must also review state laws, which may have stricter requirements (e.g., California and New York). (ADP Resource)

PamGro Tip: When hiring globally, classification rules vary by jurisdiction. What’s “non-exempt” in the U.S. might align with “non-managerial” or “hourly” roles abroad—PamGro’s EOR services ensure consistent compliance across borders.

In essence:

• Exempt = salary + duties + independence

• Non-exempt = hourly or lower-salaried + wage protections

Non-exempt employees must be compensated for every hour worked and overtime beyond 40 hours weekly. Exempt employees, by contrast, are paid for performance, not time.

Getting this distinction wrong can trigger back pay claims, legal penalties, and brand damage—especially for global employers under wage and hour laws . PamGro helps businesses prevent such issues with local classification audits and labor law compliance monitoring.

Example 1: A retail associate earning $16/hour who works 45 hours in a week must be paid 5 hours of overtime at 1.5× rate ($24/hour).

Example 2: A customer support executive earning $38,000/year but performing non-managerial duties remains non-exempt and eligible for overtime.

In both cases, the employer must track hours worked, calculate overtime, and maintain payroll records—tasks simplified through PamGro’s EOR and HR management systems.

As companies expand internationally, the concept of “non-exempt” becomes a local compliance challenge. Labor laws differ by jurisdiction—Germany, India, or Canada each define overtime and pay thresholds differently.

With PamGro’s Employer of Record (EOR) model, global employers can improve their general business operations :

• Hire international talent without setting up local entities

• Classify employees correctly under local law

• Automate wage and overtime compliance

• Manage cross-border payroll seamlessly

Proper classification isn’t just about paying fairly—it’s about protecting your organization from risk and building a compliant, trusted global workforce, and importantly, it is not a substitute for legal or tax advice.

A U.S.-based SaaS firm hired customer service agents on salary, assuming they were exempt. The agents worked 50+ hours weekly without overtime. After a DOL audit, the company faced $120,000 in back wages and penalties.

Partnering with PamGro, the company restructured job descriptions, converted roles to non-exempt, implemented automated time-tracking, and ensured wage compliance across the U.S. and India. The result: zero compliance issues, accurate payroll, and improved employee satisfaction.

Hiring across borders? Classifying employees as exempt or non-exempt is just one compliance step in a global framework. PamGro helps businesses expand confidently with:

• Employer of Record (EOR) solutions for compliant hiring in 100+ countries

• Global payroll management that handles hours, overtime, and taxes

• Regulatory compliance support tailored to each country’s labor laws

PamGro ensures you hire anywhere—safely, legally, and efficiently.

Learn how PamGro simplifies employee compliance.