Key takeaways
- Job titles don't decide exempt status. Salary and actual duties do.
- Most exempt employees must pass three tests: salary basis, salary level, and duties.
- The federal salary level is $684 per week ($35,568 a year) after the Department of Labor rescinded its 2024 rule.
- Several states, including California, New York, and Washington, set much higher thresholds.
- Misclassification can mean two to three years of back overtime plus an equal amount in damages.
Under the Fair Labor Standards Act, non-exempt employees must receive at least minimum wage and overtime pay for hours over 40 in a workweek. Exempt employees are excluded from those requirements because their salary and job duties meet specific tests set by the Department of Labor.
An operations coordinator at a growing logistics company gets a new title: Operations Manager. Her pay moves to a salary, and someone tells her she is now exempt, so no more overtime. She keeps doing the same work: scheduling drivers, updating spreadsheets, answering customer calls. She just stops getting paid for the 50-hour weeks.
Two years later she leaves and files a wage claim. The company is surprised to learn that the new title changed nothing under the law. She didn't supervise anyone, she didn't exercise real independent judgment on significant matters, and her duties were the same as before. The company owes her back overtime, plus damages.
This is one of the most common and most expensive HR mistakes in the US. Here is how to classify correctly.
The three tests for exemption
For most white collar exemptions, an employee has to pass all three of these tests.
- Salary basis. The employee receives a predetermined, fixed salary that doesn't go down based on the quality or quantity of work. Docking pay for partial-day absences, for example, can break the salary basis.
- Salary level. The salary meets the minimum threshold. The federal level is currently $684 per week, which is $35,568 a year.
- Duties. The employee's primary duty fits one of the exemption categories described below.
Pay a salary above the threshold to someone whose duties don't qualify, and they are still non-exempt. That's the trap the operations coordinator's employer fell into.
Where the federal salary threshold stands
The federal threshold has bounced around. In 2024 the Department of Labor issued a rule raising it in stages. A federal court in Texas vacated that rule in November 2024, and the Department later formally rescinded it. That left the 2019 level of $684 per week in place for most exempt employees.
For highly compensated employees, a separate test applies to people earning at least $107,432 a year in total compensation, including at least $684 per week in salary, who customarily perform at least one exempt duty.
Some groups have special rules. Doctors, lawyers, and teachers aren't subject to the salary test. Outside sales employees aren't either. Certain computer employees can be exempt if paid at least $27.63 an hour.
The duties tests in plain English
Executive
The employee's primary duty is managing the business or a recognized department. They regularly direct the work of at least two full-time employees or the equivalent, and they have real authority to hire and fire, or their recommendations on those decisions carry particular weight.
Administrative
The employee's primary duty is office or non-manual work directly related to management or general business operations, and it includes exercising discretion and independent judgment on matters of significance. This is the most misapplied test. Following procedures, even complicated ones, is not the same as exercising independent judgment.
Learned professional
The work requires advanced knowledge in a field of science or learning, usually acquired through a prolonged course of specialized intellectual instruction. Think engineers, accountants, and pharmacists, not jobs that simply require a college degree.
Creative professional
The work requires invention, imagination, originality, or talent in a recognized artistic or creative field.
Computer employee
Systems analysts, programmers, software engineers, and similar roles whose primary duty is applying systems analysis or designing, developing, or testing systems or programs.
Outside sales
The primary duty is making sales or obtaining orders, and the employee is customarily and regularly away from the employer's place of business.
State rules that go further
Federal law is a floor. Several states set higher salary thresholds or stricter duties tests, and the stricter rule wins. California sets its exempt salary at twice the state minimum wage for full-time work, which puts it far above the federal level. New York and Washington also set thresholds well above federal. Colorado and a few other states have their own rules too.
If you employ people in more than one state, classify each employee under the rules of the state where they work. A role that is exempt in Texas can be non-exempt in California at the same salary.
Overtime math for non-exempt employees
Non-exempt employees earn at least one and a half times their regular rate for hours over 40 in a workweek. The workweek is a fixed, recurring 168-hour period, and you can't average hours across two weeks.
The regular rate includes more than the hourly wage. Nondiscretionary bonuses, such as attendance or production bonuses promised in advance, and shift differentials usually must be included. Truly discretionary bonuses are excluded.
A quick example. An employee earns $20 an hour and works 45 hours. She also earns a $50 production bonus for the week. Her regular rate is ($900 + $50) divided by 45, or about $21.11. Overtime premium is half that rate for 5 hours, about $52.78, on top of straight time for all 45 hours.
Private employers generally can't give comp time instead of overtime pay. That option is limited to public sector employers.
Salaried does not mean exempt
You can pay a non-exempt employee a salary. You just still owe overtime. Plenty of companies pay coordinators, assistants, and junior analysts a salary and track their hours for overtime. That is completely legal and often the cleanest option for roles that don't meet a duties test.
Misclassification mistakes and what they cost
- Relying on job titles like manager or specialist.
- Treating every salaried employee as exempt.
- Applying the administrative exemption to roles that follow set procedures.
- Ignoring state thresholds after a remote hire.
- Docking exempt salaries for partial-day absences, which can jeopardize the exemption.
Back wage claims under the FLSA generally reach back two years, or three for willful violations, and employees can recover liquidated damages equal to the back pay. Attorney fees are added on top. Class and collective actions can multiply the cost quickly.
Pay deductions that can break an exemption
Exempt employees must receive their full salary for any week in which they perform any work, regardless of how many days or hours they work. That rule surprises a lot of managers.
A few deductions are allowed. You can deduct full-day absences for personal reasons, full-day absences for sickness under a bona fide sick leave plan once leave is used up, unpaid disciplinary suspensions of one or more full days for serious workplace conduct violations, and unpaid FMLA leave. You can also prorate pay in the first and last week of employment.
What you generally can't do is dock pay for a partial day, for a slow week when there is not enough work, or for a mistake on the job. An actual practice of improper deductions can cost you the exemption for everyone in the same job classification working for the same managers during the time the deductions were made. The regulations include a safe harbor if you have a clearly communicated policy against improper deductions, reimburse anyone affected, and comply going forward.
How common roles usually land
Every role has to be judged on its actual duties, but some patterns come up again and again in classification audits.
| Role | Usual result | Why |
|---|---|---|
| Office manager who supervises two or more staff and hires | Often exempt (executive) | Manages a recognized unit and directs two full-time equivalents |
| Administrative or executive assistant | Usually non-exempt | Important work, but rarely independent judgment on matters of significance |
| Payroll or HR coordinator | Usually non-exempt | Follows established procedures |
| HR manager setting policy | Often exempt (administrative) | Exercises discretion on significant matters |
| Inside sales representative | Usually non-exempt | The outside sales exemption needs regular work away from the office |
| Software engineer | Often exempt (computer or professional) | Designs and develops systems |
| IT help desk technician | Often non-exempt | Troubleshooting and installing usually falls outside the computer exemption |
| Retail assistant store manager | Depends on the facts | A frequent lawsuit target when most time is spent on the register or stocking shelves |
Reclassifying a role without losing trust
Moving someone from exempt to non-exempt can feel like a demotion to the employee, even when it leaves them better paid because they now earn overtime. How you explain it matters.
Say plainly that the change is about how the law treats the duties of the role, not about their performance or importance. Show how their pay will work, including how overtime will be calculated, and set expectations about tracking time. If you set a new hourly rate, make sure a typical week's pay, including expected overtime, doesn't drop. Before you announce anything, ask employment counsel whether back pay is owed for past weeks, because the answer affects what you say and when.
Running a classification audit
Review every role at least once a year and whenever a job changes significantly. For each role, write down the actual primary duty, compare it to the duties test, confirm the salary meets the federal and state thresholds, and document your reasoning. If you find a misclassified role, talk with employment counsel about how to correct it and whether back pay is owed. Time tracking software makes it easier to pay non-exempt employees correctly, and our time and attendance guide explains what to look for.
FLSA classification audit checklist
Work through this list with your team. The printable PDF version has space to tick each item off.
- List every role and its actual primary duty
- Confirm salary basis: fixed salary with no improper deductions
- Confirm salary meets the federal level of $684 per week
- Check state salary thresholds for each work location
- Match each exempt role to a specific duties test
- Document why each role meets the duties test
- Review roles using the administrative exemption with extra care
- Confirm non-exempt employees track all hours worked
- Include nondiscretionary bonuses in the overtime regular rate
- Recheck classification when duties or work location change
- Talk with employment counsel before reclassifying roles
Where to go from here
Wherever you are in the process, there is a next step that fits.
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Frequently asked questions
What is the exempt salary threshold in 2026?
Can a salaried employee be non-exempt?
Does a manager title make someone exempt?
Can private employers give comp time instead of overtime?
How far back can employees claim unpaid overtime?
Sources
We checked the facts in this guide against these primary sources. Laws and thresholds change, so confirm current rules before you act.
Written by the HRTally Research Team
Our guides are written and reviewed by people with hands-on US HR, payroll, and HR technology experience. Legal and tax facts are checked against primary sources, such as the Department of Labor, IRS, EEOC, and USCIS, and linked at the end of each guide. Vendors never review or pay for our editorial content.