Exempt vs. non-exempt employees: how to classify correctly

Executive overview

Misclassifying employees as exempt or non-exempt exposes employers to lawsuits and back-pay liability. Classification depends on two factors: salary level and job duties — not job title. The DOL sets six duty categories to guide the determination.

Getting classification wrong can mean two years of unpaid overtime owed per employee.

What non-exempt means

• Covered by the FLSA: entitled to federal minimum wage and overtime at 1.5× hourly rate beyond 40 hours/week
• Currently applies to any employee earning under $35,568/year ($684/week)
• States like California and New York set higher thresholds — always check local rules
• Employers must post minimum wage and overtime standards in visible workplace areas

What exempt means

• Not covered by FLSA overtime requirements
• Must earn at least $684/week ($35,568/year) to qualify
• Must also meet one of the DOL's defined duty categories

How to determine classification

• Base classification on day-to-day duties, not job title
• Non-management blue-collar roles (production, maintenance, construction, trades) are always non-exempt
• Inside salespeople on commission are non-exempt hourly workers — a common misclassification
• The DOL defines six exempt duty categories: Executive, Administrative, Professional, Learned and Creative, Computer-related, Outside Sales, and Highly Compensated

Misclassification risks

• Employees can claim up to two years of unpaid overtime if misclassified
• Repeated violations may result in civil penalties
• Risk is highest when non-exempt workers are wrongly classified as exempt
• Fowler v. OSP Prevention: property damage investigators classified as exempt lost their case in the 11th Circuit — employer was found liable