Exempt vs. Non-Exempt Employee Classification

Exempt vs. Non-Exempt Employee Classification

Exempt vs. Non-Exempt Employee Classification

Most business owners find it difficult to distinguish between the exempt and non-exempt employees, and it also causes a great deal of confusion between employers and employees. Whether you are entitled to the overtime payment or not (usually means the extra time you work after the standard 40 hours for every week), depending on your exemption position according to the FLSA (Fair Labor Standards Act), remains the primary ambiguity in this regard. However, various other jobs don’t fall under these standards, like agricultural jobs, truck driving, and others, which are usually governed by other law organizations.

Majority of citizens in U.S come under the FLSA and you can either classify them as exempt or non-exempt, depending on the overtime pay regulations. As an amateur, you may not have a clear idea of what category of workers these are, but don’t ponder over it because that’s what we are here for today! We’ll give you a quick breakdown of what rules apply to which workers. So let’s dive right in.

Non-Exempt Employees

If you work as a non-exempt employee for more than the standard time per week, that’s 40 hours, then according to the FLSA policies, you are entitled to extra pay for the time and one-half of the standard hours of overtime work you spend. Concisely, if you are working on the hourly basis and get paid for the hours you work, apart from the standard hourly paid rate, then you are classified as a non-exempt employee. If you are a non-exempt employee, then you will not qualify for the numerous white collar job exemptions. Such employees usually include maintenance, technicians, construction, semi-skilled, blue collar, laborers, and clericals.

Exempt Employees

Such employees don’t get any protection and cover from the FLSA, and this means that they are not entitled to any overtime payments. According to the FLSA, airline and sales employees are exempt, and if you meet with three points, then you are in this category. These are the rules that apply:

  • If you are getting a payment of $23,600 for the year
  • If you get paid on the wage basis (doesn’t apply to people who work on “hourly basis,” like school teachers, and physicians)
  • If you perform duties on the job that are classified as exempt

To qualify for the exempt status, the nature of your job is also taken into account. Typically, the duties of exempt employees are high, and the FLSA splits them into three further categories:


Employees are exempt from the FLSA policies and rules if they perform duties such as:

  • Supervise more than one employee
  • Work as a manager
  • Having the power to hire, assign tasks, fire and so on.

In most cases, such people are usually considered in charge or the boss of the business or company.


For people who have duties that support the business, like public relations, accounting, human resources and payroll staffs, then they fall under this category. Duties must also include:

  • Office work
  • Tasks related to the management or customers of the business
  • Independent discretion and judgment of significant business matters


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Setting Up Sales Tax in QuickBooks Online

Setting Up Sales Tax in QuickBooks Online

Setting Up Sales Tax in QuickBooks Online

Sales tax is one of the more complicated concepts supported by QuickBooks Online.

QuickBooks Online was designed for you, the small businessperson. You’ve probably discovered that many of its features are fairly easy to use from the start.

But just because QuickBooks Online can do something doesn’t mean you should attempt it on your own. Sales tax is one of those things. Depending on your geographical location, you may have to charge not only state sales tax, but also county and city/municipality taxes (and sometimes special taxes). If you’re selling products or services to customers in other states, your situation can get very complicated.

We’ll show you some of the mechanics involved, but we strongly recommend that you let us help you with this.

Setting Up Sales Tax

We’ll describe the process of setting up sales tax rates so you can see how it will work. Click the Taxes link in the toolbar. The new screen should open to the Sales Tax Center; if it doesn’t, click its link in the toolbar above. In the right vertical pane, under Related Tasks, click Add/edit tax rates and agencies. Then click New to open this window:

You can define either a Single tax rate or Combined tax rate in this window.

You’d enter the Tax name, Agency name, and Rate in the designated fields if you’re just creating a Single tax rate. In some cases, you may have to enter a Combined tax rate. If so, click the button in front of that label. The window that opens contains fields that are similar to the ones in the above image, except that Tax name is replaced by Component name. You’ll choose this option when you have to record individual elements of the tax separately. For example, Ft. Myers | Lee County| Florida State.

To muddy things up even more, some items in some situations are exempt from sales tax.

Questions about the Combined tax rate? Contact us.

When you’re done, click Save. You’ll see the tax you just created in a table in the window that opens. To define a New tax, Edit an existing one, or Deactivate one in the list, click the appropriate button. If you’ve entered all you’ll need for now, click Return to Sales Tax Owed and Recent Payments.

Your Responsibilities

Once you’ve set up all the sales tax rates required for you, QuickBooks Online will calculate them for you in transactions where they need to be collected. You can see the running tally in the Sales Tax Center, but it’s up to you to create and record payments on the prescribed schedule. You can also run related reports here.

The site bases its calculations on three things:

  • The state(s) where you have obtained a sales tax permit(s),
  • Your company’s physical location, and,
  • The customer address on the sales form.

But QuickBooks Online can’t know the exact tax situation for all its users. You have to do some detective work before you even approach us for help setting up sales taxes. You’ll need to know, for example, whether your state taxes the products or services you sell. Also, what’s the sales tax rate(s) for the affected states? What agency collects it? When are the payments you’ve collected from your customers due?

Your state government’s website should cover all of this.

Sales Tax Settings

Before you start working with sales tax, you’ll also need to make sure your settings are correct. Go back to the Sales Tax Center and click Edit tax settings on the right side of the screen to open this window:

To save time, QuickBooks Online lets you set some default sales tax actions.

Click the button in front of Yes after Do you charge sales tax? if it’s not already selected. If most of your transactions will use the same sales tax, you can set it as the default (but change it during transactions if necessary). If the majority of customers, products, and services will be subject to sales tax, you can check the boxes in front of the Mark all…statements (these designations, too can be edited in individual transactions).

You can see that using QuickBooks Online’s sales tax tools requires research, decisions, and extreme accuracy (state revenue departments run occasional audits). We have to stress again the importance of consulting with us if you need to take this on. It’s an exceptionally complex element of accounting, and we want to make it work for you.

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Employee Versus Contractor

Employee Versus Contractor

Employee Versus Contractor

With all the clear pros to hiring an employee instead of a contractor, it should be apparent when faced with such a decision – except that there are also clear and distinct pros to hiring a contractor instead of an employee.

This is to say that there is no clear answer to which is better. Both have their pros and cons, and ultimately the decision depends on the needs of your small business at the time. That said, below are a few of the more essential pros to hiring either or.

Pros of Hiring a Contractor

The first advantage to hiring an independent contractor instead of an employee is that it lowers your overhead. That is, your annual payroll, expenses, and other ancillary costs can be significantly lower as you are hiring on an as-needed basis instead of inefficiently keeping someone on even if the work is intermittent.

Second, you will see a dramatic reduction in employee benefit’s costs. Yes, this is part of the first advantage but is such an important one that it earns its own mention. Employee health benefits are a considerable expense to small business, one that is often a factor in that business being successful. Again, by paying only for what you need, you are streamlining your business.

A final benefit is a flexibility. As stated, a small business often has several non-recurring responsibilities that don’t necessitate a full-time employee. Also, it allows a small business owner to see the value of having a staff member whose sole purpose is the one job. It’s like test driving a position: you learn if it the position requires a permanent employee.

Pros of Hiring an Employee

Possibly the biggest pro to hiring a permanent employee is loyalty. Now, many employers believe that loyalty has gone the way of the do-do. However, many employees reflect how they are being treated. If you manage an employee well, they may go above and beyond their responsibilities because they have a personal connection to the job.

A second pro is that you could maximize their time. Instead of using them for only one job, you could cross-train them to maximize your limited resources. That is, instead of hiring a contractor who has agreed to only specific tasks, a small business owner can have a permanent employee who can be used (and compensated) to be a jack-of-all-trades.

Finally, having an employee can make the workplace function in a far more efficient manner as they have already learned the nuances of how the company functions.

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A Few Reminders in How to Conduct an Effective Interview

A Few Reminders in How to Conduct an Effective Interview

A Few Reminders in How to Conduct an Effective Interview

As a small business owner, hiring is a practice you may not need to do on a regular basis. In fact, unless you are expanding your business it may be best that you do as little hiring as possible as that would suggest you found the right people the first time around. Except, we do not always get it right the first time. Sometimes it is a poor judgment call on our part, while other times unexpected events conspire against us. Whatever the reason, it’s good to make sure that your interviewing skills remain sharp. As we all know, it’s a particular kind of frustration or disappointment when we invest time, money, and resources into hiring and training someone, only for them not to work out. With that in mind, here are a few points to remember when conducting an interview.

1. Pay attention to the potential employee’s non-verbal communication when you meet and greet them.

Yes, numerous successful business practices involve highly complex and theoretical tactics, but there are still some that are best executed by relying on the observation of fundamental human behaviors. Does the individual exhibit confidence? Are they looking you in the eye? Do they seem excited to be given this opportunity? All these and more can be clear indications of the potential employee’s preparedness and willingness to do the job. In effect, it offers you a window into who this person that you are considering bringing into your company really is.

2. Give them a chance to be successful.

Namely, when you sit down to begin the interview allow them to relieve some of their anxiety by letting them acclimate to the situation. You can quickly do this by briefly talking about the company and the position. This will allow the individual a chance to gain their composure and to act more naturally. Often, our expectations do not let a potential employee an opportunity to succeed.

3. During the interview, avoid questions that require a “yes” or “no” response.

As you will notice, the trend here is to find out whom you are really considering paying to handle parts of your business. By having them respond, in short, extemporaneous answers, you again get to see better who these people are and how they think and react. In fact, if they stumble when answering it gives you an excellent opportunity to witness how they deal with adversity and increased pressure.

4. Finally, after you have asked all of your questions, give them a chance to ask their questions.

Don’t forget; they may want to vet you as much as you want to vet them. This is also a subtle way for you to learn their perceptions of the position and what’s required of them. Ultimately, when they know exactly what’s expected of them and are comfortable with it, the understanding makes for a more symbiotic work relationship.


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What Records to Keep in a Personnel File?

What Records to Keep in a Personnel File?

It can be difficult to know what employee records a small business should keep in a personnel file. Should it only hold onto the bare minimum and risk not having enough documentation to protect itself should it need to in the future, or should it keep everything and files become so thick that it is impossible to find anything efficiently? Ultimately, a practical compromise is necessary.

Below is a brief list of the essential documents a small business should keep in a personnel file. However, please remember that this list is a guideline, a template and that ultimately it is up to the specific needs of the small business to determine what stays and what goes.

 Employment Agreement Records

The most basic of personnel file documents that need retaining should center on the professional relationship between the employee and employer. These documents would include the employee’s application and resume, the description of the job as given to the employee, the offer of employment, and the signed receipt of the employee handbook.

 Legal Documents

The most important of the legal documents that need retaining should be the ones related to taxes. These would include W-4s and state withholding forms. Obviously, the tax forms required by your business may not be the same as other businesses, but the idea is to make sure that a copy of whatever tax forms is required always are kept in the employee’s file. Also, legal documents may include next of kin information, emergency contacts, and forms relating to employee benefits.

 Employee Performance Documents

An essential collection of documents is how the employee performs their job. Primarily, this documentation will provide the necessary empirical data to justify an employee’s review. A short list of such records would include awards, reprimands, notes on attendance, certificates of successful completion of training programs, and why and under what conditions the employee left. In essence, these documents should give a stranger an understanding of what this individual was like as an employee.

Unnecessary Documents

However, there are records that you should avoid including in an employee’s personnel file. These would include an I-9 as a government official who may need access to this record does not need to leaf through all the other personal information to find it, and medical records as a small business are legally required to keep this information confidential and available to only a select few.

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