Should you pay your managers and office or executive staff an hourly rate or salary? Which way is the "right" (i.e. legal) way to compensate these types of employees?

This topic of exempt versus nonexempt status can be confusing and difficult for busy business owners and restaurateurs to navigate, but it's one task that you absolutely must get right. If you don't, the ramifications can be downright disastrous.

And because this is such an important topic, if you don't have time to read this article in its entirety right this minute, head over to YouTube and watch my quick, two-minute video overview on how to properly classify your employees. It'll be time well-spent.

Otherwise, let's get to it.

Exempt and Nonexempt

The first part of the classification equation is knowing the difference between exempt and nonexempt employees. The Fair Labor Standards Act (FLSA) provides extensive guidance here. But to keep this as simple and straightforward as possible, here's a quick breakdown of the primary differences:

Exempt employees
• Generally includes employees who function in an executive, administrative, professional, computer, or outside sales role;
• Are ineligible for overtime; and
• Are salaried employees.

Nonexempt employees
• Typically includes all other employees;
• Are eligible for overtime after working 40 hours in one week; and
• Are paid hourly.

Put Each Employee to the Test

There are a few ways to test if you have determined the correct classification for your employees.
First, to assign exempt status to an employee such as a manager or office staff, the following three things must hold true for that employee:
• Must be paid at least $684 per week ($35,568 per year)*; and
• Must be paid on a salary basis; and
• Must perform exempt job duties as their primary function (i.e. for restaurants, most often this means managerial or executive duties such as overseeing at least two or more employees, participating in hiring, firing, scheduling decisions, etc.)

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