Exempt vs Non-exempt Employees: Who Gets Overtime

The salary and duties tests that decide whether an employee must be paid overtime, and the common misclassifications.

Actualizado 2026-10-20

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Non-exempt employees must be paid at least minimum wage and overtime after 40 hours a week. Exempt employees are excluded from those rules. The label depends on how the employee is paid and what they do, not on the job title.

The three tests for the main exemptions

1. Salary basis: paid a fixed salary that does not change with hours or quality of work.
2. Salary level: at least $684 per week ($35,568 a year) under the federal rule in force. A 2024 rule raising this was struck down in court; check dol.gov for the current figure. Several states set higher thresholds (California requires twice the state minimum wage for full-time work).
3. Duties: the primary duty must fit one of the categories below.

The categories

• Executive: manages the enterprise or a department, directs two or more full-time employees, has hiring and firing input.
• Administrative: office or non-manual work related to management or general business operations, with discretion and independent judgement on significant matters.
• Professional: work requiring advanced knowledge in a field of science or learning (learned professional) or invention and originality in an artistic field (creative professional).
• Computer employee: systems analysis, programming or software engineering; may be paid hourly at $27.63 or more.
• Outside sales: regularly away from the employer’s place of business making sales; no salary requirement.
• Highly compensated: total annual compensation of at least $107,432 with at least one exempt duty.

Common misclassifications

• Assistant managers who spend most of their time on the register.
• Inside sales staff paid a salary with no discretion over terms.
• Paying someone a salary and assuming that alone makes them exempt.
• Hourly employees given a title such as “coordinator” to avoid overtime.

Being paid a salary does not make an employee exempt. A salaried employee who fails the duties test is non-exempt and owed overtime; the salary is converted to an hourly regular rate (salary ÷ hours it is intended to cover) to compute it.

What non-exempt means in practice

Hours must be tracked. Overtime is 1.5x the regular rate for hours over 40 in the work week, plus state daily rules where they exist. Deductions from pay for partial-day absences are allowed for non-exempt but generally destroy the salary basis for exempt employees.

State differences

California, Washington, New York and Colorado have higher salary thresholds and stricter duties tests. Where state and federal rules differ, the one more favourable to the employee applies.

This guide is a summary for planning, not legal advice. Misclassification claims carry back pay and penalties; when in doubt, treat the role as non-exempt and track hours.

Salary thresholds by state (2026)

An employee below the applicable threshold is non-exempt regardless of duties.

Converting a salary to a regular rate

When a salaried employee turns out to be non-exempt, overtime is computed from a regular rate. If the salary is for a 40-hour week, the regular rate is salary ÷ 40 and each overtime hour is paid at 1.5 times that. If the salary was agreed to cover all hours worked (the fluctuating workweek method), the regular rate is salary ÷ actual hours and only the half-time premium is owed, but that method has strict conditions and several states, including California, prohibit it.

Worked example

An assistant manager paid $700 a week is found to be non-exempt because 80% of their time is spent on the register. They worked 48 hours. Regular rate: $700 ÷ 40 = $17.50. Overtime: 8 × $17.50 × 1.5 = $210. The employer owes $210 for that week on top of the salary, and the same for every week in the look-back period (two years federally, three if wilful, four under California’s unfair competition law).

Frequently asked

Can an hourly employee be exempt? Computer professionals paid at least $27.63 an hour and some medical and legal professionals can be. Almost everyone else paid hourly is non-exempt.

Can an exempt employee be docked for leaving early? Generally no. Partial-day deductions from an exempt employee’s salary undermine the salary basis and can convert the whole classification. Full-day deductions are allowed in limited cases.

Does a manager title make someone exempt? No. The duties test looks at what the person actually does most of the time, including whether they direct at least two full-time employees and have real input into hiring and firing.

What about independent contractors? A different question entirely. Contractors are not employees and get neither minimum wage nor overtime, but misclassifying an employee as a contractor is its own violation with its own tests.