Exempt vs non-exempt employee
Exempt vs non-exempt is whether an employee is owed overtime under the Fair Labor Standards Act or passes the tests for an exemption.
- LAW
- FLSA §13(a)(1); 29 CFR Part 541
- THE TESTS
- Usually salary basis, salary level, and duties
- FEDERAL THRESHOLD
- $684 a week ($35,568 a year)
- WATCH FOR
- Title or salary alone never makes a job exempt
Non-exempt employees must get at least the minimum wageMinimum wage. Minimum wage is the lowest hourly rate you may legally pay a covered employee, set by federal, state, and sometimes local law.Click to open the term for every hour worked. Hours over 40 in a workweekWorkweek (FLSA). A workweek under the Fair Labor Standards Act is a fixed, regularly recurring period of 168 consecutive hours used to compute overtime.Click to open the term earn at least 1.5 times the regular rate. Exempt employees are carved out, but only when the job passes every test for an exemption. Job title alone never decides it. Some states set higher salary thresholds or stricter duties tests, so a job exempt federally can be non-exempt under state law.
Does the role pass the three tests?
For the executive, administrative, and professional exemptions, three tests generally apply together. Answer for the job as it is actually done, not as the description reads. Outside sales employees have no salary test, and computer employees can qualify when paid at least $27.63 an hour.
| TEST | WHAT IT ASKS |
|---|---|
| Salary basis | A predetermined salary, not reduced for the quality or quantity of work |
| Salary level | At least $684 a week ($35,568 a year) under the current federal rule |
| Duties | Duties that fit the exemption, such as managing two or more employees, discretion on significant business matters, or advanced or creative work |
What is the highly compensated employee exemption?
The highly compensated employee exemption is an FLSAFLSA. The Fair Labor Standards Act (FLSA) is the federal law setting minimum-wage, overtime, recordkeeping, and youth employment standards for covered employment.Click to open the term test that trades the full duties test for higher pay. An employee with total annual compensation of at least $107,432 a year, including at least $684 a week on a salary or fee basis, is exempt if the employee customarily and regularly performs at least one exempt executive, administrative, or professional duty. The primary duty must include office or non-manual work, so non-management production-line and construction employees never qualify. The 401(k)401(k). A 401(k) is an employer-sponsored retirement plan funded through payroll deferrals the employee elects, usually alongside an employer contribution.Click to open the term highly compensated employee test is separate, and state law can differ.
- Salary or fee pay (at least $684 a week required)
- Commissions
- Nondiscretionary bonuses
- Other nondiscretionary compensation earned in the 52-week period
- A final make-up payment within one month after the period
- Board, lodging, and other facilities
- Payments for medical insurance
- Payments for life insurance
- Contributions to retirement plans
- The cost of other fringe benefits
Side by side
An hourly employee is paid a set rate for each hour worked, and most hourly employees are non-exempt.
| WHITE-COLLAR EXEMPT | NON-EXEMPT | |
|---|---|---|
| Overtime | None owed | At least 1.5 × the regular rate over 40 hours a week |
| Minimum wage | Not required by the FLSA | Required for every hour |
| Pay basis | Usually a salary that meets the tests | Hourly, salary, piece, or commission |
| Hours records | Not required by the FLSA | Hours each day and week |
Why the classification matters
Misclassifying a non-exempt worker as exempt is an expensive wage-and-hour mistake. It typically means unpaid overtime going back two years under federal law, three for a willful violation. Liquidated damages can double the back pay. Re-check a classification whenever a role’s duties or pay change materially, not only at hire.
Frequently asked
- Fair Labor Standards Act, 29 U.S.C. §213 (Exemptions)
- 29 CFR Part 541, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Computer and Outside Sales Employees
- 29 CFR §541.601, Highly compensated employees
- U.S. Department of Labor, Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA)
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.