Exempt vs non-exempt employees for small business owners
A non-exempt employee must be paid at least minimum wage and 1.5× the regular rate for hours over 40 in a workweek; an exempt employee does not have to be, but only if paid on a salary basis of at least $684 a week and their primary duty passes the executive, administrative or professional test (29 CFR 541.600; DOL Fact Sheet #17A). (Outside sales and certain computer employees have separate tests; see Fact Sheet #17A.) Job titles do not determine exempt status.
Three tests, all must pass
| Test | Rule | Source |
|---|---|---|
| Salary level | At least $684 per week | 29 CFR 541.600(a) |
| Salary basis | A predetermined amount each pay period, not reduced for the quality or quantity of work | 29 CFR 541.602(a) |
| Duties | Primary duty meets the executive, administrative or professional test | Fact Sheet #17A |
Salary level in other pay periods
| Pay period | Minimum salary |
|---|---|
| Weekly | $684 |
| Biweekly | $1,368 |
| Semimonthly | $1,482 |
| Monthly | $2,964 |
| Annual (52 weeks × $684) | $35,568 |
Weekly through monthly figures are from 29 CFR 541.600(b); the annual figure is the arithmetic. Up to 10% of the $684 can come from nondiscretionary bonuses, incentives or commissions paid at least annually (29 CFR 541.602(a)(3)).
The duties tests
| Exemption | Primary duty | Other conditions |
|---|---|---|
| Executive | Managing the enterprise or a recognized department or subdivision | Regularly directs 2 or more other employees (Fact Sheet #17A says full-time or equivalent); can hire or fire, or their recommendations get particular weight |
| Administrative | Office or non-manual work related to management or general business operations | Includes discretion and independent judgment on significant matters |
| Learned professional | Work requiring advanced knowledge in science or learning | Knowledge acquired by prolonged specialized instruction |
| Creative professional | Work requiring invention, imagination, originality or talent in a recognized artistic or creative field | — |
Highly compensated employees: total annual compensation of at least $107,432, including at least $684 a week in salary, who regularly perform at least one exempt duty (29 CFR 541.601).
Examples from a multi-location business
| Role | Pay | Facts | Result |
|---|---|---|---|
| Store manager | $900/week salary | Runs one store, directs 2 or more full-time employees, recommendations on hiring are followed | Can meet the executive exemption |
| Shift lead called "assistant manager" | $650/week salary | Below $684 | Non-exempt; owed overtime regardless of title |
| Area supervisor | $20/hour | Not paid on a salary basis | Non-exempt |
| Bookkeeper | $800/week salary | Enters invoices to set procedures, no significant independent judgment | Fails the administrative duties test as described; non-exempt |
Salary basis traps
- An exempt employee must get the full salary for any week in which they do any work, regardless of days or hours worked (29 CFR 541.602(a)(1)).
- No deductions for absences caused by the employer or the business, such as closing a store early. If the employee is ready, willing and able to work, you cannot deduct for time when work is not available (29 CFR 541.602(a)(2)).
- You do not have to pay an exempt employee for a workweek in which they do no work (29 CFR 541.602(a)(1)).
What reclassifying costs
A salaried non-exempt employee is still owed overtime. DOL Fact Sheet #23 gives this example: an employee paid a $405 salary for a 45-hour workweek has a regular rate of $405 ÷ 45 = $9.00, and the 5 overtime hours earn an extra 5 × $4.50 = $22.50. Applied to the $650 shift lead with a salary agreed for a 48-hour week: $650 ÷ 48 = $13.5417 regular rate, plus 8 × $6.7708 = $54.17 overtime premium, for $704.17. Check the regular rate against your state minimum wage; see calculating overtime.
State rules
State salary thresholds or duties tests that differ from federal rules: NOT FOUND in the DOL pages used for this article. Check your state on labor laws by state and with the state labor department. To cut overtime once roles are classified, see reducing overtime across locations.
This is general information, not legal advice. Check your state labor department for current rules.
This is general information, not legal advice. Check your state labor department for current rules.
Questions
What is the salary threshold for exempt employees?
$684 per week ($35,568 a year), per 29 CFR 541.600 as published in the eCFR checked November 12, 2026.
Does a manager title make someone exempt?
No. DOL Fact Sheet #17A says job titles do not determine exempt status; salary and actual duties do.
Can I pay a salaried employee less for a short week?
Not if they are exempt and did any work that week; 29 CFR 541.602 requires the full salary, with limited exceptions.
What is the highly compensated employee threshold?
$107,432 in total annual compensation, including at least $684 a week in salary (29 CFR 541.601).
Sources
- US DOL WHD Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees (revised September 2019) (checked 2026-11-12)
- eCFR 29 CFR 541.100 General rule for executive employees (checked 2026-11-12)
- eCFR 29 CFR 541.600 Amount of salary required (checked 2026-11-12)
- eCFR 29 CFR 541.601 Highly compensated employees (checked 2026-11-12)
- eCFR 29 CFR 541.602 Salary basis (checked 2026-11-12)
- US DOL WHD Fact Sheet #23: Overtime Pay Requirements of the FLSA (revised October 2019) (checked 2026-11-12)