Exempt vs. Non-Exempt: The FLSA Salary and Duties Tests in Plain English

Calling someone "salaried" doesn't make them exempt from overtime. Under the federal Fair Labor Standards Act (FLSA), most employees must be paid at least minimum wage and time and a half for hours over 40 in a workweek. An employee is exempt from those rules only if the job meets specific tests, and the burden of showing that falls on the employer.

Misclassification is one of the most common and expensive wage-and-hour problems for growing companies, because it usually affects a whole group of roles at once and builds up quietly over time. This guide explains the federal tests in plain English, the mistakes we see most often, and how to review your own roles.

This is general information, not legal advice. Figures and rules are stated as of October 2026. Check the U.S. Department of Labor's Wage and Hour Division (WHD) and your state labor agency before you make classification decisions, and involve employment counsel for anything borderline.

The three tests for the "white-collar" exemptions

The best-known exemptions are for executive, administrative and professional employees, often called the white-collar or EAP exemptions. The rules are in 29 CFR Part 541. To qualify, an employee generally has to pass three tests:

• Salary level: paid at least the minimum salary set by the regulations.
• Salary basis: paid a predetermined, fixed salary that isn't reduced because of the quality or quantity of work.
• Duties: the employee's primary duty matches one of the exemptions.

All three must be met. A high salary doesn't make an employee exempt if the duties don't fit, and the right duties don't help if the pay structure is wrong.

Salary level: the current federal threshold

As of October 2026, the federal standard salary level is $684 per week ($35,568 a year). The threshold for "highly compensated employees" is $107,432 a year in total compensation, of which at least $684 a week must be paid on a salary or fee basis.

These are the levels set in 2019. The DOL issued a rule in 2024 to raise them, but federal courts struck it down, and in May 2026 the DOL formally rescinded it (91 Fed. Reg. 27833) and restored the 2019 figures. The DOL can still propose new levels in the future, so check WHD's overtime pages when you review pay each year.

Under the 2019 rule, employers may use nondiscretionary bonuses and incentive payments, paid at least annually, to satisfy up to 10% of the standard salary level (29 CFR 541.602(a)(3)).

State thresholds can be higher. Several states, including California, New York and Washington, set exempt salary minimums well above the federal level. When state and federal rules differ, you must meet the one that is more protective of the employee. If you have employees in more than one state, see our guide to multi-state HR compliance.

Salary basis: what "salaried" really requires

To meet the salary basis test, an exempt employee must receive the full salary for any week in which they do any work, regardless of the number of days or hours worked. The regulations allow only limited deductions (29 CFR 541.602(b)), such as:

• full-day absences for personal reasons other than sickness or disability;
• full-day absences for sickness or disability under a bona fide plan or policy that pays for such absences;
• unpaid leave taken under the Family and Medical Leave Act;
• pay for only the days actually worked in the first and last week of employment.

Docking an exempt employee's pay for a partial day, for a slow week when the business had no work, or for jury duty (beyond offsets for jury fees) can break the salary basis. The DOL's regulations include a safe harbor for employers who have a clearly communicated policy against improper deductions, reimburse any improper deductions, and comply going forward (29 CFR 541.603(d)). A short written policy in your handbook is worth having; our employee handbook guide covers where it fits.

Duties: the part most employers get wrong

Job titles don't decide exemption. The WHD looks at the employee's primary duty, meaning the main, most important work they actually do. Here are the federal duties tests in simplified form; DOL Fact Sheet #17A has the full text.

Executive exemption

• The primary duty is managing the company or a recognized department or subdivision.
• The employee customarily and regularly directs the work of at least two full-time employees or the equivalent.
• The employee can hire or fire, or their recommendations on hiring, firing, promotion and other status changes are given particular weight.

A "manager" who supervises one part-time employee, or who mostly does the same work as the team, often doesn't qualify.

Administrative exemption

• The primary duty is office or non-manual work directly related to the management or general business operations of the employer or its customers.
• That primary duty includes the exercise of discretion and independent judgment on matters of significance.

This is the exemption most often misapplied. Following procedures, checking work against standards, or doing data entry is not the same as exercising discretion and independent judgment. Many office coordinator, assistant and specialist roles don't meet it.

Professional exemptions

• Learned professional: the primary duty requires advanced knowledge in a field of science or learning, customarily acquired through a prolonged course of specialized intellectual instruction (for example, accountants with professional credentials, engineers, registered nurses in many roles).
• Creative professional: the primary duty requires invention, imagination, originality or talent in a recognized artistic or creative field.

Other exemptions

Computer employees (such as systems analysts and software engineers) can be exempt if they meet the duties test and are paid either the standard salary level or at least $27.63 an hour. Outside sales employees, whose primary duty is making sales away from the employer's place of business, have no salary requirement. Each has its own conditions in Part 541.

Common misclassification mistakes

• Treating "salaried" as "exempt." You can pay a non-exempt employee a salary, but you must still track hours and pay overtime.
• Classifying by title. "Manager," "coordinator" or "analyst" on a job description says nothing about the duties test.
• Assuming entry-level office roles are administrative. Most assistant and coordinator roles fail the discretion and judgment requirement.
• Forgetting the salary review. A role that met the threshold when it was set up can fall below it if the threshold rises, or after a move to a state with a higher one.
• Docking partial days. Improper deductions can put the salary basis, and the exemption, at risk.
• Not keeping time records for non-exempt staff. The FLSA's recordkeeping rules (29 CFR Part 516) require hours worked for non-exempt employees.

The cost of getting it wrong can be significant. Under the FLSA, employees can recover unpaid overtime plus an equal amount in liquidated damages, generally for two years back, or three years if the violation was willful (29 U.S.C. 216(b) and 255).

How to review your own roles

• List every role currently treated as exempt, with its salary and the state where the employee works.
• For each, write down the primary duty in a sentence and match it to a specific exemption. If you can't, flag it.
• Check pay against the federal and state salary levels.
• Review payroll practices for deductions from exempt pay.
• For roles you reclassify as non-exempt, set up timekeeping, explain the change to the employee clearly, and get advice on any back-pay exposure before you act.

Reclassification is a normal part of growing a company. Doing it deliberately, with clear communication, is far better than having it happen through a complaint or a WHD investigation. It also connects to other headcount milestones; see our overview of federal employment laws by company size.

How Signent HR helps

Signent HR offers compliance reviews and compliance projects, alongside handbook, policy and onboarding work, as part of our HR services. If you're not sure your exempt roles would hold up, schedule a discovery call. Current clients can send classification questions through the client portal.