Exempt vs Non-Exempt Employees: Definitions, Salary Threshold, and How to Classify

A non-exempt employee is covered by the Fair Labor Standards Act's minimum wage and overtime rules and must be paid at least 1.5 times their regular rate for hours over 40 in a workweek. An exempt employee is excluded from those rules, usually because they are paid a salary above a set threshold and perform executive, administrative, or professional duties. Most hourly workers are non-exempt; most salaried managers and professionals are exempt; and a salaried job title on its own proves nothing.

This guide explains the tests that decide the classification, the current federal salary threshold, the categories of exemption, what each status means day to day, and how to classify a role without guessing.

What Exempt and Non-Exempt Mean

The terms come from the Fair Labor Standards Act (FLSA), the federal law that sets the minimum wage and overtime pay. "Exempt" means exempt from the FLSA's overtime and minimum wage requirements. "Non-exempt" means the requirements apply.

Non-exempt is the default. An employee is non-exempt unless the employer can show that a specific exemption applies, and the burden of proof sits with the employer.

The Three Tests for Exemption

The most common exemptions, often called the white-collar or EAP exemptions, require an employee to meet all three of the following tests.

1. Salary basis test

The employee must receive a predetermined amount of pay each pay period that does not go up or down with the quantity or quality of work performed. The Department of Labor's Fact Sheet 17G describes it as an employee who "regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis," an amount that "cannot be reduced because of variations in the quality or quantity of the employee's work."

Improper deductions can destroy the exemption. Employers may reduce an exempt employee's salary only in narrow cases, such as full-day absences for personal reasons, full-day absences under a bona fide sick leave plan, unpaid disciplinary suspensions for conduct violations, and the first or last week of employment.

2. Salary level test

The employee must be paid at least the federal minimum salary. The Department of Labor's earnings thresholds page currently lists the standard salary level as "$684 per week (equivalent to a $35,568 annual salary)."

A 2024 final rule would have raised that figure in two steps, but the US District Court for the Eastern District of Texas vacated the rule on November 15, 2024, and the Department has applied the $684 level since. In May 2026 the Department published a technical amendment restoring the earlier regulatory text, which the DOL newsroom announced on May 14, 2026. The practical result is the same: $684 per week is the federal floor as of September 2026.

Employers may use non-discretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of the standard salary level if they are paid at least annually.

3. Duties test

The employee's primary duty must be the kind of work the exemption describes. This is where most misclassification happens, because it depends on what the employee actually does rather than the job description or title.

The Main Exemption Categories

The Department of Labor's Fact Sheet 17A sets out each test in full. Two points are easy to miss. Help desk staff and IT support technicians usually do not meet the computer employee exemption, because installing, configuring, and troubleshooting is not systems analysis or software design. And the administrative exemption requires discretion on matters of significance, which routine processing of claims, tickets, or transactions does not satisfy.

What the Classification Means in Practice

For non-exempt employees

• Every hour worked must be recorded, including work done before clocking in, after clocking out, or through an unpaid lunch.
• Overtime is owed at 1.5x the regular rate for hours over 40 in each workweek. Some states add daily overtime; see overtime pay laws by state.
• The regular rate includes shift differentials, non-discretionary bonuses, and commissions, not just the base hourly wage.
• Salaried non-exempt employees still earn overtime; the regular rate is the weekly salary divided by the hours it is intended to cover.
• Meal and rest break rules in many states apply to non-exempt staff.

For exempt employees

• No overtime is owed under federal law regardless of hours worked.
• The full salary is owed for any week in which the employee performs any work, subject to the narrow deduction rules above.
• Tracking hours is optional for pay purposes, though many employers still track time for project costing, scheduling, or leave accrual.
• Exempt employees can be required to work a fixed schedule and can be disciplined for attendance, as long as pay is not docked improperly.

Common Misclassification Mistakes

Misclassification is one of the most frequent sources of wage and hour claims, and back pay for unpaid overtime typically covers two years, or three for willful violations, plus an equal amount in liquidated damages.

1. Assuming salary equals exempt. Paying a salary satisfies one test out of three. A salaried employee below $684 per week is non-exempt automatically, and one above it is non-exempt if the duties test fails.
2. Relying on job titles. A "team lead" or "coordinator" who spends most of the day doing the same work as the people they sit beside usually does not meet the executive test. The executive exemption needs real management as the primary duty and genuine input into hiring and firing.
3. Stretching the administrative exemption. Work that follows established procedures, such as processing applications, handling routine customer escalations, or entering data, is not "discretion and independent judgment on matters of significance."
4. Misusing the computer exemption. Help desk, desktop support, and network technicians are generally non-exempt.
5. Improper deductions. Docking an exempt employee's salary for a half-day absence or a slow week can convert the whole classification to non-exempt.
6. Forgetting state law. An employee can be exempt under the FLSA and non-exempt under state law if the state threshold is higher.

A contact center example

Consider a contact center with agents, team leads, and an operations manager.

• Agents answer calls and chats, follow scripts and procedures, and are paid hourly. They are non-exempt. Time on calls, after-call work, required pre-shift logins, and system downtime all count as hours worked.
• Team leads who take escalations, coach agents, and monitor queues but do not hire, fire, or set schedules, and who spend most of their time on the floor, are usually non-exempt even if salaried. If they are paid a salary, that salary must still be converted to a regular rate for overtime.
• The operations manager who runs the site, supervises the team leads, sets staffing, and makes hiring decisions is likely exempt under the executive exemption, provided the salary is at or above the federal and state thresholds.

The cost of getting the team-lead layer wrong is significant, because those employees often work the longest hours.

State Rules That Go Further

Several states set exempt salary thresholds far above the federal $684 per week, and some tie the threshold to the state minimum wage so that it rises every January. A payroll compliance summary from Symmetry Software lists the following 2026 figures for the executive, administrative, and professional exemptions:

These figures change yearly, so confirm them with the state before relying on them. Our state guides for California, New York, Washington, and Colorado cover each state's overtime rules. California also applies its own duties tests, which are stricter than the federal versions, and New York's threshold varies by region.

When federal and state rules differ, the rule more favorable to the employee applies. An employee earning $50,000 in Seattle is exempt under the FLSA but non-exempt under Washington law and is owed overtime.

How to Classify a Role Step by Step

1. Start from non-exempt. Treat every role as non-exempt until the tests below are met.
2. Check the salary basis. Is the employee paid a fixed amount per period that does not vary with hours or output? If not, the role is non-exempt (outside sales and some computer employees excepted).
3. Check the federal salary level. Is the salary at least $684 per week? If not, non-exempt.
4. Check the state salary level. Is the salary at least the threshold in the state where the employee works? If not, non-exempt under state law.
5. Apply the duties test honestly. Look at how the employee actually spends the majority of their time, not the job description. Use the FLSA exemption guide flowchart to walk through each exemption's elements.
6. Document the decision. Record which exemption applies and why, with the duties that support it. Revisit the classification when duties change, when the salary changes, and every January when state thresholds move.
7. When in doubt, classify as non-exempt. Paying overtime to an employee who might have been exempt costs money. Failing to pay overtime to an employee who was non-exempt costs money, liquidated damages, and legal fees.

Record-Keeping for Non-Exempt Staff

The FLSA requires employers to keep accurate records of hours worked each day and each workweek for every non-exempt employee, along with the basis of pay, regular rate, overtime earnings, and deductions. Payroll records must be kept for at least three years and the underlying time records for at least two.

Accurate records are also the employer's defense. When hours are disputed and the employer has no reliable record, courts generally accept the employee's reasonable estimate.

HiveDesk records clock-in and clock-out times automatically on desktop, mobile, and browser, keeps each workweek separate so overtime is calculated correctly, and generates timesheets that managers approve before payroll. It is $5 per user per month with every feature included, and the 14-day free trial does not need a credit card.

For manual calculations, the time card calculator applies the 40-hour weekly threshold and daily state rules, and time tracking and payroll explains how tracked hours flow into gross pay. The gross pay guide covers what the regular rate must include.

Frequently Asked Questions

What is the difference between exempt and non-exempt employees?

Non-exempt employees are covered by the FLSA's overtime and minimum wage rules and earn 1.5x their regular rate for hours over 40 in a workweek. Exempt employees are excluded from those rules because they meet a salary and duties test. Non-exempt is the default classification.

What does exempt mean on a job posting?

It means the employer has classified the role as exempt from overtime. You will be paid a fixed salary regardless of hours worked, and you will not receive overtime pay. It usually signals a salaried management, administrative, or professional position.

What is the salary threshold for exempt employees in 2026?

The federal threshold is $684 per week, or $35,568 per year, as published by the Department of Labor. Highly compensated employees have a separate threshold of $107,432 in total annual compensation. Several states set higher thresholds, including Washington at $80,168.40 and California at $70,304 for 2026.

Can a salaried employee be non-exempt?

Yes. Salary is only one of three tests. A salaried employee who earns less than $684 per week, or who does not primarily perform exempt duties, is non-exempt and must be paid overtime. The regular rate is the weekly salary divided by the hours it covers.

Can an hourly employee be exempt?

Rarely. The standard exemptions require payment on a salary or fee basis. The main exception is the computer employee exemption, which allows hourly pay of at least $27.63 per hour, and outside sales, which has no pay requirement.

Do exempt employees get overtime?

Not under federal law. An employer may choose to pay exempt employees extra for long hours, and doing so does not affect the exemption, but nothing requires it.

Are managers automatically exempt?

No. The executive exemption requires management as the primary duty, regular direction of at least two full-time employees, and genuine authority over hiring and firing, on top of the salary tests. A working supervisor who mostly does the same work as their team is often non-exempt.

What happens if an employee is misclassified as exempt?

The employer owes back overtime for the hours over 40 in each affected workweek, typically for two years, or three if the violation was willful, plus an equal amount in liquidated damages in many cases, and often the employee's legal fees. The employee should also be reclassified going forward.

Do exempt employees have to track their time?

Not for pay purposes under the FLSA. Many employers still track exempt employees' time for project costing, client billing, scheduling, or leave accrual, which is allowed as long as the salary is not reduced based on the hours recorded.