HR & Employment
Definition
A classification under the Fair Labor Standards Act that determines whether an employee is entitled to minimum wage and overtime pay, based on their salary level and job duties.
The exempt vs. non-exempt distinction is governed by the Fair Labor Standards Act (FLSA) and determines which employees are entitled to overtime pay (1.5x their regular rate for hours over 40 in a workweek) and minimum wage protections. Non-exempt employees must be paid at least federal minimum wage and must receive overtime for all hours worked beyond 40 per week. Exempt employees are not entitled to overtime pay regardless of how many hours they work.
To qualify as exempt under the FLSA, an employee must generally meet three criteria: the salary basis test (paid a fixed salary not subject to reduction based on hours worked), the salary level test (earning at least $684 per week as of 2020, with the DOL periodically updating this threshold), and a duties test establishing that the employee's primary responsibilities qualify them under one of the recognized exemption categories — executive, administrative, professional, computer, or outside sales.
The duties tests are complex and frequently misapplied. An employee with an impressive title and a salary above the threshold is not automatically exempt if their actual day-to-day work does not meet the duties criteria. For example, the administrative exemption requires the exercise of discretion and independent judgment on significant matters — not just performing administrative tasks. Misclassifying a non-exempt employee as exempt is one of the most common — and expensive — wage and hour violations employers face.
Many states have enacted their own overtime and minimum wage laws that are more stringent than the FLSA. California, for example, requires daily overtime (over 8 hours in a day) and has a higher salary threshold for exemption. Employers must comply with whichever law — federal or state — provides greater protections to the employee.
Misclassifying a non-exempt employee as exempt can result in liability for up to three years of unpaid overtime, plus an equal amount in liquidated damages, plus attorney's fees. In industries like retail, food service, healthcare, and manufacturing where employees regularly work long hours, this exposure can reach hundreds of thousands of dollars per employee and frequently results in class action lawsuits covering entire job classifications.
An HR consultant can audit your workforce classifications against current FLSA and state-law standards and identify any positions that need reclassification. An employment attorney should be involved whenever a classification decision is ambiguous — particularly for roles that are genuinely borderline between exempt and non-exempt — so the decision is documented and defensible. Getting this right proactively costs far less than resolving a wage and hour claim after the fact.