What is Exempt and Non-Exempt Employees?

Under the Fair Labor Standards Act, employees are either non-exempt, entitled to minimum wage and overtime for hours over 40 in a workweek, or exempt from those requirements because they meet specific criteria. The Department of Labor explains the exemptions on its overtime pages.

The tests for common exemptions

The executive, administrative and professional exemptions generally require:

1. Salary basis: a predetermined salary not reduced for variations in quality or quantity of work
2. Salary level: at or above the required minimum
3. Duties test: primary duties that match the exemption, such as managing the enterprise and directing employees, or work requiring advanced knowledge

All applicable tests must be met. Job titles do not determine status.

Common misconceptions

• "Salaried means exempt": paying a salary does not by itself make someone exempt
• "Managers are always exempt": assistant managers who mostly perform the same work as their team may not be
• "Independent contractors are exempt employees": contractors are not employees at all; classification is a separate question

Other exemptions

Specific exemptions apply to certain computer professionals, outside sales employees, some motor carrier employees and others, each with its own conditions.

State law

Many states have stricter salary levels or duties tests, or daily overtime rules.

Payroll setup

Each employee's status should be documented with the reasoning when they are hired or change roles. Non-exempt employees need accurate time records. See our guide to FLSA overtime rules and our payroll services.

Browse more definitions in the small business glossary.