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Exempt or Non-Exempt Under the FLSA: The Overtime Question

Paying someone a salary does not make them exempt from overtime. Giving them a manager title does not either. Exemption is decided by three tests, and an employee has to pass all three — miss one and you owe overtime, regardless of what the offer letter says.

A practical overview of Chinese overtime calculation can help teams connect this process with day-to-day operational data.

This is general information, not legal advice. Classification questions should go to employment counsel licensed in the states where you employ people.

The three tests

1. Salary basis. The employee receives a predetermined, fixed amount that is not reduced because of variations in the quality or quantity of work.

2. Salary level. That amount meets or exceeds the applicable threshold.

3. Duties. The work actually performed falls within one of the recognised exemptions — executive, administrative, professional, and a few others.

The third is where most misclassification happens, because it is the only one that cannot be answered by looking at a payslip.

The current federal threshold

The minimum salary for the executive, administrative and professional exemptions under federal law is $684 per week in 2026, unchanged from 2025.

That figure has a history worth knowing, because a lot of published guidance is out of date. A 2024 rule would have raised it substantially in stages. After the Fifth Circuit denied the appeals, the DOL revised its regulations in May 2026 to restore the pre-2024 amount of $684 per week. The 2019 threshold therefore remains the governing federal standard, while highly compensated employees require total annual compensation of $107,432 including a salary of at least $684 per week.

The practical takeaway for employers: job titles and descriptions alone do not determine exemption. What determines it is the duties actually performed, payment on a salary basis, and compliance with the thresholds currently in effect — not the higher figures announced in the vacated 2024 rule.

The DOL has signalled it intends to review the rule, which would go through the normal regulatory process, so this is worth monitoring rather than treating as settled.

States change the answer

This is the part multi-state employers get wrong most often.

Where a state sets a higher salary threshold than the federal $684 per week, employers must meet the more protective state level, and several jurisdictions increased or defined thresholds taking effect in 2026.

California is the sharpest example. To qualify for California's executive, administrative and professional exemptions, employees must satisfy the salary and duties tests and earn at least twice the state minimum hourly wage on a 40-hour week — a minimum of $1,352 per week from January 1, 2026.

That is nearly double the federal figure. An employee correctly classified as exempt in one state can be non-exempt in another at the same salary.

Six states raised their thresholds on January 1, 2026, and employers who did not adjust salaries before the new year may have more overtime-eligible employees than they realise. Some increases land mid-year — Alaska's on July 1 — which argues for a staged implementation plan rather than a single annual review.

The duties tests, briefly

Salary gets you past the first hurdle. Duties decide the rest.

Executive. Primary duty is managing the enterprise or a recognised department; customarily directs the work of at least two full-time employees; has authority to hire or fire, or their recommendations carry particular weight.

Administrative. Primary duty is office or non-manual work directly related to management or general business operations, and includes the exercise of discretion and independent judgment on significant matters.

Professional. Work requiring advanced knowledge in a field of science or learning, customarily acquired by prolonged specialised instruction — or work requiring invention, imagination, or talent in a recognised artistic field.

There are further exemptions, including outside sales and certain computer employees.

"Primary duty" means the principal, main, or most important duty. Not something the person does occasionally. A shift supervisor who spends most of their time doing the same work as their team, with management as a small fraction of the day, is a weak candidate for the executive exemption regardless of the title.

The most common misclassifications

Assistant managers who mostly do the line work. Title says management, duties say otherwise.

Administrative staff without real discretion. The administrative exemption requires independent judgment on significant matters, not administrative work in the everyday sense. Following established procedures carefully is not discretion.

Everyone in a small company put on salary. Common in startups and family businesses, and a straightforward source of liability.

Salaried employees below the threshold. The simplest error and the easiest to find in an audit.

Inside sales treated as exempt. The outside sales exemption requires the employee to be customarily and regularly away from the place of business.

What it costs to get wrong

Back pay for unpaid overtime, commonly across a two-year lookback and three years for willful violations. Liquidated damages, often doubling the back pay. Attorney's fees. State penalties on top, which in some states are severe.

Misclassification also tends to be a class problem rather than an individual one — if one assistant manager is misclassified, all of them are.

A workable review

  1. List every salaried employee with their weekly salary and work state.
  2. Flag anyone below the applicable threshold — federal or state, whichever is higher.
  3. For those above it, test the duties honestly. Not against the job description; against what the person actually did last month.
  4. Look hardest at borderline roles: supervisors who perform line work, coordinators, specialists, anyone whose title contains "assistant."
  5. Document the basis for each exempt classification, in writing.
  6. Set a review cadence tied to state threshold changes, most of which land on January 1.
  7. Get counsel involved on anything ambiguous. The cost of an hour of advice is trivial against the cost of a collective action.

If you find a misclassification

Do not simply reclassify quietly going forward and hope. There is back pay exposure, and how it is handled matters.

Take advice on remediation before acting. Options and consequences differ by state and by how the correction is communicated, and an employee who is reclassified with no explanation and no back pay has both a grievance and a clear claim.

The one-line version

Salary basis, salary level, and duties — all three, in every state where you employ someone, reviewed against what people actually do rather than what their job description says.

PJP helps growing employers review classification, job architecture, and pay structure. HR consulting → For broader reference, consult U.S. Department of Labor FLSA resources.