What Is an Exempt Employee?

What Is an Exempt Employee?

Exempt employees are salaried workers exempt from Fair Labor Standards Act (FLSA) overtime pay requirements. Unlike non-exempt workers who receive time-and-a-half after 40 hours, exempt employees receive the same salary whether they work 40 or 60 hours per week.

To qualify as exempt, employees must meet three criteria: minimum salary level ($684/week federally, higher in many states), salary basis (fixed amount not based on hours), and duties test (executive, administrative, or professional responsibilities).

Quick Answer

Exempt employees are salaried workers not entitled to overtime. They must earn at least $684/week ($35,568/year) federally, receive fixed salaries, and perform executive, administrative, or professional duties. About 56% of full-time U.S. workers are classified as exempt. Misclassification violations result in over $100 million in annual settlements.

What Are the Requirements for Exempt Status?

You can’t just decide someone is exempt because it’s convenient. There are three tests they must pass.

Salary Level Test

Federal minimum: $684 per week ($35,568 annually)

But many states set the bar higher:

• California: $66,560/year (2024 for employers with 26+ employees)
• New York: $58,500–$62,400/year (varies by location)
• Washington: $67,724/year (2024)
• Colorado: $55,000/year (2024)
• Maine: $48,880/year (2024)

If someone earns below these thresholds, they can’t be exempt—no matter what their job duties look like.

Salary Basis Test

Exempt employees receive a fixed salary that stays the same week to week. It doesn’t matter if they work 35 hours or 55 hours—same pay.

The trap: Making improper deductions destroys exempt status.

You can’t dock pay for partial-day absences (except for specific situations like FMLA, first/last week of employment, full-day unpaid leave, or disciplinary suspensions). Break this rule and the employee becomes non-exempt retroactively—suddenly you owe overtime pay you never calculated.

Duties Test

Here’s where titles stop mattering and actual work starts.

Employees must spend more than 50% of their time performing exempt duties. Calling someone “Assistant Manager” doesn’t make them exempt if they spend 80% of their day stocking shelves or running the register.

The job title is just a label. The duties determine the classification.

What Are the Common Exempt Categories?

Executive Exemption Duties

To qualify as exempt executive:

• Primary duty is managing the enterprise or a department/subdivision
• Regularly directs work of at least two full-time employees (or equivalent)
• Has authority to hire, fire, or make recommendations that carry particular weight

Example: Restaurant manager who supervises 5 servers, creates schedules, handles hiring interviews, and can recommend termination qualifies. A shift lead who supervises 2 workers but has no hiring authority does not qualify.

Administrative Exemption Duties

To qualify as exempt administrative:

• Primary duty is office or non-manual work directly related to management or general business operations
• Includes exercise of discretion and independent judgment on significant matters

Example: HR manager who develops company policies, investigates complaints, and makes recommendations on discipline qualifies. An HR assistant who schedules interviews and files paperwork does not qualify (insufficient discretion).

Professional Exemption Duties

To qualify as exempt professional (learned professional):

• Primary duty requires advanced knowledge (intellectual, requiring prolonged specialized instruction)
• In a field of science or learning
• Customarily acquired by prolonged specialized intellectual instruction

Example: Licensed engineer, CPA, attorney, registered nurse in specialized role qualify. Medical assistant, paralegal, bookkeeper do not qualify (insufficient advanced knowledge requirement).

What Is the Difference Between Exempt and Non-Exempt Employees?

Key Distinctions

Non-exempt employees earn time-and-a-half for overtime regardless of salary amount or job title. An assistant manager earning $40,000/year salary who doesn’t meet the duties test is non-exempt and entitled to overtime.

Exempt employees receive the same pay whether they work 35 hours or 55 hours in a week. However, employers can legally require exempt employees to work long hours without additional compensation.

What Are the Risks of Misclassifying Employees?

Financial Liability

Back wages: Employers must pay all unpaid overtime for typically 2–3 years (up to 3 years for willful violations)

Example: Misclassified “manager” earning $45,000/year ($865/week) working average 50 hours/week for 2 years:

• Weekly overtime owed: 10 hours × $24.86 (time-and-a-half) = $248.60/week
• Annual overtime: $248.60 × 52 = $12,927
• Two-year liability: ~$25,854 per employee

Liquidated Damages

Courts can award liquidated damages equal to unpaid wages, effectively doubling the liability.

Penalties and Fines

Department of Labor can assess civil penalties up to $2,374 per violation for willful or repeated violations.

Legal Fees

Prevailing employees recover attorney’s fees and costs, often exceeding the wage liability itself.

Class Action Risk

Misclassification often affects multiple employees, creating class action exposure with exponentially larger damages.

Reputation Damage

Wage and hour violations become public record and damage employer brand, making recruitment harder and creating negative media coverage.

The Department of Labor reports collecting over $274 million in back wages from wage and hour violations in recent years, with misclassification among the top violations.

How Do You Properly Classify Employees?

Step 1: Verify Salary Level

Confirm employee earns at least $684/week federal minimum (or higher state minimum). If below threshold, employee is automatically non-exempt regardless of duties.

Step 2: Confirm Salary Basis

Ensure salary doesn’t vary based on hours or work quality. If you dock pay for partial-day absences or pay based on daily rates, classification is likely improper.

Step 3: Apply Duties Test

Evaluate whether primary duties (more than 50% of work time) consist of genuinely exempt functions:

• Executive: Managing people, hiring/firing authority
• Administrative: Discretion on significant business matters
• Professional: Advanced knowledge requiring specialized education

Job titles are irrelevant. An “Assistant Manager” spending 80% of time on non-managerial tasks is non-exempt.

Step 4: Document Analysis

Maintain written job descriptions, duties analyses, and classification determinations. Documentation proves good-faith compliance during audits.

Step 5: Review Annually

Re-evaluate classifications annually or when job duties change significantly. Promotions, reorganizations, and role changes can shift exempt/non-exempt status.

Organizations managing complex scheduling often encounter classification questions when handling mandatory overtime for salaried workers versus hourly workers.

What About State-Specific Exempt Requirements?

California Exemptions

California has stricter requirements than federal law:

Salary minimum: $66,560/year (2024, employers with 26+ employees)

Duties tests: More restrictive than federal, particularly for administrative exemption

Computer professional: $112,065/year salary or $55.58/hour

No “salary basis” for certain exemptions: Doctors, lawyers, teachers have different rules

New York Exemptions

Salary minimums (2024):

• New York City: $58,500–$62,400 (depending on employer size)
• Nassau, Suffolk, Westchester: $58,500
• Remainder of state: $58,500

Duties tests: Follow federal framework

Washington Exemptions

Salary minimum: $67,724/year (2024)

Computer professionals: $55.09/hour minimum

Duties tests: Generally align with federal tests

Always verify state-specific requirements, as many states exceed federal minimums or add unique criteria.

Can Exempt Employees Track Hours?

While not required by FLSA, tracking exempt employee hours is advisable for several reasons:

FMLA and Leave Administration

Family Medical Leave Act requires tracking hours to determine eligibility (1,250 hours in preceding 12 months) and calculate intermittent leave usage.

Project Management and Billing

Professional services firms need accurate hours for client billing, project budgeting, and resource allocation.

Compliance Documentation

If classification is challenged, hour records help prove whether employees actually performed exempt duties or spent most time on non-exempt tasks.

Hybrid Roles

Some employees are exempt for certain duties but non-exempt for others. Tracking helps ensure proper pay for non-exempt work.

Many organizations use scheduling software to track exempt employee hours for project costing and leave management without triggering overtime obligations.

The Bottom Line

Exempt employees are salaried workers not entitled to overtime pay under the FLSA. They must earn at least $684/week federally (higher in many states), receive fixed salaries not tied to hours worked, and perform executive, administrative, or professional duties as their primary job function.

Proper classification requires careful analysis of salary level, salary basis, and actual job duties—not job titles. Misclassification creates substantial liability including back wages, liquidated damages, penalties, and legal fees. Organizations should review classifications annually and document analysis thoroughly.

Try ShiftFlow’s scheduling tools to track hours for both exempt and non-exempt workers, ensuring proper FMLA administration and project management regardless of classification.

Sources

• U.S. Department of Labor – Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees
• U.S. Department of Labor – Wage and Hour Division
• California Division of Labor Standards Enforcement – Exemptions

Further Reading

• Mandatory Overtime Guide – Requirements for required extra hours
• Double Time Pay Rules – Premium pay requirements
• Annualized Salary Explained – Understanding yearly compensation

Frequently Asked Questions

What is an exempt employee?

An exempt employee is a salaried worker exempt from FLSA overtime requirements. They must earn at least $684/week ($35,568/year) federally, receive fixed salaries, and perform executive, administrative, or professional duties.

What is the minimum salary for exempt employees?

Federal minimum is $684/week ($35,568/year). Many states require higher: California $66,560/year, New York $58,500–$62,400, Washington $67,724, Colorado $55,000.

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

Exempt employees receive fixed salaries and no overtime pay regardless of hours worked. Non-exempt employees receive overtime (1.5× pay) after 40 hours/week and are entitled to minimum wage protections.

Do exempt employees get overtime?

No, exempt employees do not receive overtime pay regardless of hours worked. They receive the same salary whether working 40 hours or 60 hours per week.

Can you pay an exempt employee hourly?

No. Exempt employees must receive a predetermined fixed salary that doesn’t vary based on hours worked. Hourly payment automatically makes an employee non-exempt and entitled to overtime.

What happens if you misclassify an employee as exempt?

Misclassification requires paying back wages for all unpaid overtime (2–3 years), potential liquidated damages (doubling liability), penalties up to $2,374 per violation, and attorney’s fees.

Can exempt employees track hours?

Yes. While not required by FLSA for overtime purposes, tracking hours helps with FMLA administration, project billing, and documenting that employees perform actual exempt duties.

What is the duties test for exempt employees?

The duties test requires employees to primarily perform executive (managing people), administrative (discretion on significant matters), or professional (advanced knowledge/creative) work, not just hold a certain title.