Exempt vs. Non-Exempt: The Overtime Rule Explained
Let me start with the mistake I hear most often: "That person is exempt because I pay them a salary."
That's not how it works. How you pay someone — hourly or salary — is your choice. Whether they're exempt from overtime is determined by the federal government, based on their actual role.
First, What Are They Exempt From?
Exempt means exempt from being paid overtime.
The default is that everyone gets overtime when they work it. The government then carves out specific groups you're not required to pay overtime to — those employees are "exempt" from the requirement.
Overtime means working more than 40 hours in a work week. You get to define your work week — Sunday through Saturday, or whatever you choose — but it's calculated weekly. You can't average it across a month, and it isn't based on a long single day. Ten hours on Tuesday isn't overtime by itself; more than 40 in the week is.
This all falls under the Fair Labor Standards Act (FLSA), the federal law governing wages and hours.
And Yes, This Applies to You
Some HR rules only kick in at 50 employees. This is not one of them.
Whether you have one employee or ten thousand, you follow the Fair Labor Standards Act. Every business hearing this needs to hear that part.
The Exemptions
The FLSA lays out specific exemption categories:
Executive
Administrative
Professional
Computer professionals
Outside sales
The Department of Labor publishes detailed guidance on each, with real job examples — and it's worth reading carefully.
Here's the key: it is not based on job title, and not even purely on the job description. It's based on what the person actually does. Do they exercise independent judgment? Do they supervise people? Does the role require specific degrees or specialized skills?
I've seen plenty of "managers" who don't meet the executive exemption, and plenty of unglamorous titles that do.
The Salary Threshold
Every one of those exemptions also requires a salary basis test — a minimum salary level.
As of today, that threshold is $684 per week, or $35,568 per year. For highly compensated employees, it's $107,432 per year.
This is worth explaining, because there's real confusion out there. In 2024, the DOL finalized a rule raising that threshold substantially — on its way toward roughly $58,656. A federal court vacated that rule in November 2024, and in May 2026 the DOL formally removed it from the regulations and restored the prior standard.
So if you reclassified employees or raised salaries back in 2024 anticipating the higher number, it's worth revisiting what you did and why.
The practical rule: if someone earns less than $35,568, you can stop analyzing. They are non-exempt, and you owe them overtime. Above that number, you still have to work through the duties tests — salary alone never makes someone exempt.
What to Do Now
Take an honest look at how you've classified everyone. Who are you treating as exempt, and do they genuinely meet both the salary basis and the duties test?
If you find people who are misclassified, you have options. You can raise pay, reclassify them as non-exempt and pay overtime, or require prior authorization before anyone works overtime at all. That last one matters — if you don't permit overtime, this becomes a non-issue financially. If you routinely require overtime and haven't been paying it, the exposure is real.
The Bottom Line
Classification isn't about what you call someone or how you cut the check. It's about what they actually do and what they earn — and the rules apply to businesses of every size.
This is one of the areas we review in our HR Assessment, which looks across compliance, day-to-day HR, and strategy to find where you might be exposed. Honestly, this stuff is complicated enough that our own experts sometimes put their heads together on a tricky call.
Have a classification question, or want a full review? Grab a free 30-minute session with one of our HR experts — we're happy to walk you through it.