Exempt vs. Non-Exempt: How to Classify Employees Without Guessing

Under the Fair Labor Standards Act (FLSA), most employees are entitled to minimum wage and overtime at one and a half times their regular rate for hours worked over 40 in a workweek. Employees who are exempt from that overtime requirement must satisfy all three prongs of a test — not just one.

The three-part test

1. 01Salary basis: the employee is paid a predetermined, fixed salary that is not reduced because of variations in the quality or quantity of work.
2. 02Salary level: the salary meets or exceeds the threshold set by the U.S. Department of Labor. This threshold has changed multiple times in recent years and has been the subject of litigation — verify the current figure before relying on it, and note that several states set higher thresholds than federal law.
3. 03Duties: the employee's primary duties fit one of the recognized exemptions — executive, administrative, professional, computer, or outside sales.

Job titles do not create exemptions

A person titled 'Office Manager' who spends most of the week on scheduling and data entry is very likely non-exempt, regardless of salary. The administrative exemption requires that the primary duty include the exercise of discretion and independent judgment with respect to matters of significance. Routine clerical work, however skilled, does not meet that bar.

Where states change the answer

• California, New York, Washington, Colorado, and Alaska (among others) set salary thresholds above the federal minimum and apply their own duties tests.
• Several states require daily overtime after eight hours, not just weekly overtime after 40.
• If you employ people in multiple states, classification must be evaluated state by state, not once at headquarters.

What misclassification costs

A successful FLSA claim can recover up to two years of unpaid overtime (three years for willful violations), an equal amount in liquidated damages, and the employee's attorney fees. Because the standard is per-employee, a single wrong classification applied to a whole job family can compound quickly.

A simple annual practice

• Review every exempt role against actual duties once a year, not against the job description you wrote three years ago.
• Document the reasoning for each exemption in writing and keep it.
• When the answer is genuinely close, classify as non-exempt. Paying overtime is far cheaper than defending a claim.

General information, not legal advice. Salary thresholds change — confirm the current federal and state figures before classifying.