Understanding FLSA Exempt vs Non-Exempt Classification

What Is the FLSA?

The Fair Labor Standards Act (FLSA) is a federal law that establishes minimum wage, overtime pay, recordkeeping, and youth employment standards. It affects most private and public employment.

Under the FLSA, employees are classified as either exempt (not entitled to overtime) or non-exempt (must receive overtime pay at 1.5x their regular rate for hours over 40 per week).

The Two-Part Test

To classify an employee as exempt, employers must satisfy both requirements:

1. Salary Basis Test: The employee must be paid on a salary basis at or above the federal minimum threshold (currently $684/week or $35,568/year as of January 2025).

1. Duties Test: The employee's actual job duties must meet the criteria for one of the five recognized exemption categories.

Meeting one test without the other is not sufficient. An employee earning $100,000 whose duties don't qualify is still non-exempt. Similarly, an employee whose duties perfectly match the executive exemption but who earns below the threshold is non-exempt.

The Five Exemption Categories

Executive Exemption

For employees whose primary duty is managing the enterprise or a recognized department. They must customarily direct the work of two or more full-time employees and have authority to hire, fire, or make recommendations that carry particular weight.

Administrative Exemption

For employees performing office or non-manual work directly related to management or general business operations. They must exercise discretion and independent judgment on matters of significance, not just follow procedures.

Professional (Learned) Exemption

For employees whose work requires advanced knowledge in a field of science or learning (law, medicine, engineering, accounting, etc.), customarily acquired through a prolonged course of specialized intellectual instruction.

Computer Employee Exemption

For systems analysts, programmers, software engineers, and similar workers whose primary duty involves systems analysis, program design/development/testing, or a combination. Can be paid on salary or hourly basis ($27.63/hour minimum).

Outside Sales Exemption

For employees whose primary duty is making sales or obtaining orders, customarily engaged away from the employer's premises. This is the only exemption with no salary requirement.

Common Mistakes

• Job title doesn't determine status. A "Manager" title doesn't automatically make someone exempt. Actual duties matter.
• Salary alone isn't enough. Paying someone $50,000/year doesn't make them exempt if their duties don't qualify.
• State laws may differ. California, New York, Colorado, Washington, and other states have higher salary thresholds.
• Duties must reflect reality. The classification is based on what the employee actually does, not their job description.

Why It Matters

Misclassifying employees can result in:

• Back pay for unpaid overtime (up to 2-3 years)
• Liquidated damages (potentially doubling the liability)
• DOL investigations and penalties
• Class action lawsuits from affected employees

Getting it right from the start is far cheaper than correcting it later.