Exempt status employees are defined by the federal Fair Labor Standards Act (FLSA) and state laws, which vary by state. Employees with "exempt" status are exempt from the protections of the wage and hour laws of their state, or of the FLSA. Exempt employees under federal law are "executives," "professionals" and full-time students, as defined under the Fair Labor Standards Act. "Exempt" employees must always be paid on a salary basis, not subject to reduction based on the quality or quantity of work performed.
For example, exempt status employees are not subject to the minimum wage and overtime requirements of the FLSA. The Department of Labor can, however, reclassify employees as non-exempt if they are subject to any practice that shows that they are actually paid on an hourly basis. Once one employee is reclassified as non-exempt, the company is liable for the employee's overtime for the previous two to three years.
