Employee Classification: Why Paying Someone a Salary Doesn’t Make Them Exempt

One of the most common employment law misconceptions is that employees paid a salary are automatically exempt from overtime.

Unfortunately, that’s not how the Fair Labor Standards Act (FLSA) works.

Misclassifying an employee can expose a business to unpaid overtime claims, back wages, liquidated damages, attorney fees, and other potential penalties.

The good news? Employers can reduce these risks by understanding a few fundamental rules.

Salary and Exempt Status Are Not the Same Thing

Under the FLSA, employees are generally classified as either exempt or nonexempt from overtime requirements.

Nonexempt employees generally must receive overtime compensation at one and one-half times their regular rate of pay for hours worked over 40 in a workweek.

Exempt employees are excluded from certain FLSA overtime requirements because their positions meet specific legal criteria.

For most employees classified under the executive, administrative, or professional exemptions, employers must evaluate three important factors:

1. Salary basis: Is the employee generally paid a predetermined salary that is not improperly reduced based on the quantity or quality of work?

2. Salary level: Does the employee meet the applicable minimum salary threshold?

3. Job duties: Does the employee actually perform the responsibilities required by the claimed exemption?

All applicable requirements must be satisfied.

What Is the Federal Salary Threshold in 2026?

As of October 2026, the federal standard salary threshold for most executive, administrative, and professional exemptions is $684 per week, equivalent to $35,568 annually.

The U.S. Department of Labor restored the applicable 2019 regulatory text following the court’s vacatur of the 2024 overtime rule.

However, employers must remember that some states have higher exemption salary requirements or different duties tests.

Meeting the federal salary threshold does not automatically establish compliance with state law.

Job Titles Don’t Determine Exempt Status

Consider an employee called an “Office Manager.”

Despite the title, the employee primarily answers phones, processes invoices, maintains records, and performs routine administrative duties.

The employer may assume the position qualifies for the administrative exemption because the employee receives a salary.

However, the exemption generally requires more than routine office work. The employee’s primary duty must involve qualifying work directly related to management or general business operations, including the exercise of discretion and independent judgment on matters of significance.

The actual responsibilities matter more than the job title.

Best Practices for Employers

Conduct classification audits. Review job descriptions and actual responsibilities, particularly for supervisors, administrative personnel, assistant managers, and recently promoted employees.

Verify salary requirements. Compare compensation against both federal and applicable state exemption standards.

Train supervisors. Managers should understand that nonexempt employees must accurately record all hours worked, even when overtime was not approved in advance.

Review positions after organizational changes. Promotions, reorganizations, and changes in responsibilities may affect exemption eligibility.

Document classification decisions. Maintain records supporting the exemption analysis and revisit them periodically.

Your Next Step

Create an employee classification worksheet identifying each position, compensation method, claimed exemption, applicable duties, and supporting documentation.

If an exemption appears questionable, consult qualified HR or employment law professionals before making corrections.

The Bottom Line

A salary is a method of payment, not a legal exemption.

Employers who proactively evaluate classifications can reduce wage-and-hour exposure while ensuring employees receive the compensation required by law.

When it comes to overtime compliance, the details really do matter.

Lisa Smith, SPHR, SCP