For most working people, the idea of being classified as a certain type of employee is a foreign concept. It's not that you are unaware that employees are classified for the sake of compliance -- it's just not something you actively think about. But for companies, businesses, and employers, the classification of employees is a major concern. Incorrectly classifying an employee, or not giving an employee what he or she deserves based on their classification, can cause significant headaches for the company.
So with that in mind, let's talk about exempt and nonexempt employees. Complying with the rules set forth by the Fair Labor Standards Act is a must, and these two statuses are an integral part of the compliance.
A nonexempt employee is someone who must be paid minimum wage and overtime pay if they exceed 40 hours in a work week. Overtime pay is equivalent to "time and a half" of their base pay for every hour of overtime they work. When it comes to nonexempt employees, failing to properly document and record the overtime hours they work, or trying to pay them "under the table," is a major violation.
An exempt employee is not protected by the FLSA, unlike their nonexempt counterparts. They are not entitled to overtime pay, and their status is determined by three key factors (or by mandate, such as with sales staff or airlines employees). The first factor is their pay. If they make at least $23,600 per year, then they meet this requirement for exempt status. The second requirement is that their pay is a salary. And the third requirement is that they perform "exempt status" duties.
That last requirement means that if an employee meets the first two requirements and also performs high-level duties (such as supervising employees, having a say in an employee's status, or performing "professional" or "administrative" jobs such as a lawyer, teacher, physician, HR or public relations) then they are an exempt employee.
Source: FindLaw, "Exempt Employees vs. Nonexempt Employees," Accessed March 13, 2015