Exempt vs Non-Exempt Employee
An exempt employee is excluded from the overtime and minimum wage rules of the Fair Labor Standards Act. A non-exempt employee is covered by them and must be paid at least time and a half for hours worked beyond 40 in a workweek.
The label is not a job title, a preference, or something an employer and employee can agree on. It is the result of three tests, all of which must be satisfied, and the duties test does most of the work.
The three tests
29 CFR Part 541 sets out the white collar exemptions. An employee is exempt only if all three of the following are true.
| Test | What it asks | Common failure |
|---|---|---|
| Salary basis | Is the employee paid a fixed, predetermined amount that does not vary with quantity or quality of work? | Docking pay for partial days destroys it |
| Salary level | Does that amount meet the federal threshold? | Using an out-of-date figure |
| Duties | Do the employee's actual day-to-day duties fall within an exemption? | Judging by job title rather than by what the person does |
Failing any one makes the employee non-exempt, and therefore owed overtime, regardless of how the role is described in an offer letter or an org chart.
The salary threshold, and why so many pages have it wrong
The federal salary level is $684 per week, or $35,568 a year. For the highly compensated employee exemption it is total annual compensation of $107,432, including a salary of at least $684 per week.
This is the point most articles on the subject get wrong, because the number was supposed to change and then did not. A 2024 Department of Labor rule would have raised it to $43,888 in July 2024 and $58,656 in January 2025. On 15 November 2024 the US District Court for the Eastern District of Texas vacated that rule nationwide. The Department subsequently restored the earlier figure in its regulations, and appeals were denied in May 2026.
So if you are reading a page that quotes $43,888 or $58,656 as the current threshold, it was written before the rule was struck down and never updated. The operative number is $684 a week. The Department of Labor formally rescinded the 2024 rule by technical amendment published on May 15, 2026, so $684 is the operative figure by regulation as well as by court order.
State law can be stricter, and several states set a materially higher salary floor than the federal one. Where the state figure is higher, it governs.
The duties test is what actually decides it
Meeting the salary threshold does not make anyone exempt. 29 CFR 541.100 and the sections that follow it define the recognized exemptions by what the employee actually does.
- Executive. Primary duty is managing the enterprise or a recognized department, customarily directing the work of at least two full-time employees, with real authority over hiring and firing or recommendations that carry particular weight.
- Administrative. Primary duty is office or non-manual work directly related to management or general business operations, including 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 specialized instruction, or work in a recognized creative field.
- Computer employee and outside sales are separate exemptions with their own conditions.
Two phrases carry most of the disputes. Primary duty means the principal, main or most important duty, judged on the facts rather than on a percentage in a job description. And discretion and independent judgment on significant matters means more than following a detailed manual well: applying established procedures carefully is not, by itself, enough.
The practical test: if a supervisor spends most of the week doing the same work as the people they supervise, the executive exemption is fragile no matter what the title says.
What actually changes if someone is non-exempt
- Overtime. At least one and a half times the regular rate for hours over 40 in a workweek. Overtime is calculated per workweek, never averaged across a two week pay period.
- Hours records. The employer must keep hours worked each day and each workweek. Our timesheet guidance covers the full record set and how long to keep it.
- Rounding rules. If clock times are rounded, 29 CFR 785.48 applies: it must run both ways and come out even over time.
- Daily overtime in some states. Per the California Division of Labor Standards Enforcement, California pays time and a half beyond eight hours in a day and double time beyond twelve, with a separate rule for the seventh consecutive day.
Note that a salaried employee can be non-exempt. Salary is a method of payment, not an exemption. A salaried non-exempt employee is still owed overtime and still needs hours recorded, which is the arrangement employers most often get wrong.
Four things that are not true
"Salaried means exempt." No. Salary satisfies part of one test out of three.
"We agreed they would be exempt." Exempt status cannot be agreed or waived. It is determined by the facts, and an agreement to forgo overtime is unenforceable.
"They are a manager, so they are exempt." Title is irrelevant. What matters is the primary duty and whether real supervisory authority exists.
"We can give time off instead of overtime pay." Not in the private sector. That is compensatory time, and it is available only to public agencies, which our entry on comp time explains.
Key points
- Exempt means excluded from the FLSA's overtime and minimum wage rules. Non-exempt means covered by them.
- Three tests must all be met: salary basis, salary level, and duties. Failing any one makes the employee non-exempt.
- The federal salary threshold is $684 a week, or $35,568 a year. The 2024 rule that would have raised it was vacated in November 2024.
- Pages quoting $43,888 or $58,656 are describing a rule that no longer exists.
- The duties test decides most real cases, and it looks at what the person actually does rather than their title.
- A salaried employee can be non-exempt. Salary is a payment method, not an exemption.
- Exempt status cannot be agreed between employer and employee, and overtime rights cannot be waived.
Frequently asked questions
What is the difference between exempt and non-exempt?
An exempt employee is excluded from the FLSA's minimum wage and overtime requirements. A non-exempt employee is covered, and must be paid at least one and a half times their regular rate for hours worked beyond 40 in a workweek. The difference is decided by three tests, not by job title or by agreement.
What is the exempt salary threshold in 2026?
$684 per week, which is $35,568 a year, and total annual compensation of $107,432 for the highly compensated employee exemption. A 2024 rule would have raised it to $43,888 and then $58,656, but that rule was vacated by a federal court in November 2024 and the earlier figure was restored.
Can a salaried employee be non-exempt?
Yes, and this is the most common misunderstanding. Salary is a method of payment rather than an exemption. A salaried employee who does not meet the duties test, or who is paid below the threshold, is non-exempt and must receive overtime and have their hours recorded.
Does a job title determine exempt status?
No. The duties test looks at what the employee actually does day to day. A person called a manager who spends most of their week performing the same work as the people they supervise is unlikely to satisfy the executive exemption, whatever the title.
Can an employee agree to be exempt or waive overtime?
No. Exempt status is determined by the facts of the role against the regulations, and FLSA overtime rights cannot be waived by agreement. An arrangement in which an employee agrees not to claim overtime is unenforceable.
Can we give time off instead of paying overtime?
Not in the private sector. Compensatory time in lieu of overtime is permitted only to public agencies under 29 U.S.C. 207(o). A private employer that offers time off instead of overtime pay is not complying with the FLSA.
Do states have different rules?
Yes, and where state law is more protective it governs. Several states set a higher salary threshold than the federal one, and some apply daily overtime. California pays time and a half beyond eight hours in a workday and double time beyond twelve.