Exempt employee

What is an exempt employee?

An exempt employee is a worker who is not entitled to overtime pay under applicable labour laws, such as the Fair Labour Standards Act (FLSA) in the United States. Exempt status typically applies to salaried employees who meet specific job duty and income thresholds defined by law.

Unlike non-exempt employees, exempt employees are paid a fixed pay regardless of the number of hours worked and are generally not compensated for working more than 40 hours per week.

How does exempt status work?

To be classified as exempt, an employee must usually meet three key criteria:

• Pay basis: The employee receives a consistent pay, not hourly wages.
  
  
• Minimum pay threshold: The pay must meet or exceed a legally defined minimum.
  
  
• Job duties test: The role must involve specific types of responsibilities, such as executive, administrative, or professional tasks.
  
  

The exact rules vary by country and jurisdiction. Misclassification can lead to legal consequences, including back pay and penalties.

Why do companies use exempt classification?

Employers classify employees as exempt when the role supports independent work, strategic decision-making, and predictable compensation. Key benefits include:

• Simplified payroll by avoiding hourly tracking
  
  
• Flexibility in job expectations and schedules
  
  
• Cost control by limiting overtime liability
  
  

However, exempt classification must always comply with local labour laws and cannot be used solely to avoid paying overtime.

Examples of exempt employees in practice

• A software engineering manager in the U.S. earns a fixed annual pay above the FLSA threshold and is not eligible for overtime pay.
  
  
• A senior accountant in Germany is considered exempt under local labour codes due to the role’s high level of autonomy and pay.
  
  
• A startup misclassifies a junior admin assistant as exempt and faces a penalty for unpaid overtime, prompting a company-wide classification review.

Things to consider with exempt employees

• Misclassification risks can lead to fines, audits, and reputational damage.
  
  
• Local laws may define exemptions differently (e.g. US FLSA vs. EU labour directives).
  
  
• Remote or global teams require extra care to ensure each employee is classified correctly in their respective country.
  
  
• Job descriptions and pay levels should be clearly documented to justify exempt status.
  
  

How Remote can help

Correctly classifying employees as exempt or non-exempt across different countries requires deep knowledge of local labour laws, pay thresholds, and job duty criteria. Remote makes this process easier by offering:

• Create compliant, localised employment contracts based on the employee’s role and location.
  
  
• Stay ahead of regulatory changes that may affect exemption status.
  
  
• Manage payroll, benefits, and time tracking in one unified platform, so nothing falls through the cracks.
  
  

Remote simplifies exempt employee classification by combining local legal expertise with compliant employment contracts, all in one platform.  See how Remote can help you start hiring confidently today.