Exempt or Non-Exempt Employee

Are you an exempt or a non-exempt worker?

To clarify, this question is asking if you are, according to the Fair Labor Standards Act of 1938, considered an employee that is exempt from overtime pay or non-exempt from overtime pay.

If you're working some kind of office, white-collar job and your pay was listed as $X amount/yr, you're probably an exempt worker and won't get any additional pay for working more than 40 hours a week.

If you're working some kind of retail, labor, blue-collar type of job and your pay was listed as something like $X amount/hr with overtime, you might be considered a non-exempt worker and might be paid extra if you work more than 40 hours a week.

So what exempt, non-exempt really means is are you entitled to overtime pay or not.

If you get paid $60/hr and you worked 41 hours for the week, you get $90 for that extra hour as a non-exempt employee — the rate for overtime pay is 1.5x the normal rate.
An exempt employee doesn't get paid anything for the extra hour of work.

Pay Cycles

Are you paid bi-weekly (every 2 weeks) or semi-monthly (twice a month)?

With semi-monthly, you're guaranteed two paychecks a month (24 payments a year). You usually get paid on the 15th (for time worked between the 1st–15th) and on the last day of each month (for time worked between the 16th and month end). Just divide your annual salary by 24 to get the amount you should expect to be paid for each paycheck.

If you make $100,000/yr, expect to see $4,166.67/paycheck in gross earnings (meaning before taxes, deductions, etc.).
No one cares about the fact that some 16th - last day of month periods for some months are slightly shorter/longer than other months - each paycheck will have the same amount in gross earnings.

With bi-weekly, you typically get paid 26 times a year or on rare occasions 27 times a year since a year is really 52 weeks and a day (or two if it’s a leap year). Typically you will will work two weeks, and then get paid for those two weeks during the week following.

For example, if you worked Monday the 2nd through Friday the 13th, you'd get paid for time worked those two weeks on around Thursday the 19th or Friday the 20th.

The employer takes your annual salary, divides by 52 weeks, then divides again by 40 hours to get your hourly rate. Then, they’ll take that hourly rate and multiply by it 80 hours to get your two week gross earnings.

If you make $100,000/yr, your hourly rate would be $48.076923/hr and if you multiply that by 80, expect to see $3,846.15/paycheck in gross earnings (meaning before taxes, deductions, etc.).
Some employers might compute your hourly rate by dividing by 2,087 instead of 2,080.

Pre-Tax Deductions

Did you sign up for any benefits with your employer? Maybe you have a traditional 401(k) with your employer? Most benefits and traditional 401(k) retirement contributions would be considered pre-tax deductions on your paycheck. These are deductions that lessen your take home pay but are tax-free (except for traditional 401(k) contributions - you just pay taxes on those later, when you’re an old fart).

Some examples of pre-tax deductions:

Employer-sponsored medical, dental, and vision insurance
Health Savings Account (HSA) contributions
Transit/Commuter benefits
Traditional 401(k) contributions

So if you got a paycheck that said you earned $1,000 working but you also have medical insurance which costs $15 per paycheck and you also contribute $100 per paycheck to your traditional 401(k), your total pre-tax deductions are $115 and your taxable income is $885. You don’t pay taxes on the $15 at all and you don’t pay taxes on the $100 now, but you will in like 40 years when you take the money out of your retirement account.

Tax Withholdings on Pay

Basically, your employer will take money out of each paycheck and send that tax money to the government. No one knows exactly how much you owe to the government until the end of the year because your income, financial situation, filing status, and other factors may change during the year, which would change the amount of taxes you owe. Typically, employers will try to be a bit conservative and will make sure that they deduct enough money so that you won’t end up owing the government more money when Tax Day on April 15th rolls around.

You’d need to pay:

Social Security Tax — 6.2% on earnings.
- You’re paying for the Old-Age, Survivors, and Disability Insurance (OASDI) program which basically is monthly income for old, retired, and disabled people.
Medicare Tax — 1.45% on earnings (2.35% for salaries $200k+).
- Basically you’re paying for health insurance for those same old, retired, and disabled people.
Federal Income Tax
- Progressive tax, meaning the more you earn, the more taxes you pay
- You’re paying to support federal government programs and federal government workers
State Income Tax
- Depends on the state you live and work in - some states have no income tax.
- You’re paying to support state-level government programs and state workers.
Local/City/County Tax
- Depends on where you live - you may or may not have to pay this tax.
- You’re paying to support your local government programs and workers

Tax calculations are based on your earnings after pre-tax deductions. For example, using the numbers from earlier, your Social Security tax would be $885 × 6.2% = $54.87.

Let’s say, after doing all the calculations, you owe a total of $250 in taxes. Your employer will deduct that from your $885 and send that $250 off to the government, leaving you with $635.

Post-Tax Deductions

These are deductions from what's left after pre-tax deductions and tax withholdings. Two examples of post-tax deductions are:

Roth 401(k) contributions
- $ amount you chose to put into your retirement, but you paid taxes on this money now, which is why it’s a post-tax deduction.
For New York, there's New York Paid Family Leave (NYPFL) which is 0.432% of your gross pay, per paycheck, up to the $411.91 annual cap.

Continuing the earlier example, maybe you decide that you want to put another $100 into a Roth 401(k) as well. If so, take the $635, subtract $100 from it, and you’re only left with $535 to take home. Brutal, that’s like half the money you earned. A lot of it goes to taxes, which is why you should make sure the government is running the way you want it to - you’re already paying for it anyways.

Quick Recap of Paycheck Calculations

- Start with gross/earned pay

- Subtract pre-tax deductions

- Calculate and subtract the amount you owe intaxes

- Subtract your post-tax deductions

- What's left is your take home pay, the amount you get to keep and spend freely

Getting Your $$$🤑🤑🤑

Enroll in direct deposit by giving your employer your bank information and your employer will send money straight to your account on payday. You should still review your paystubs though to make sure you fully understand your income.