Exempt vs Non-Exempt: Three Tests, and Salary Is the Easy Two

A payroll system can tell you what somebody is paid. It cannot tell you whether that person is owed overtime. The distance between those two facts is where most misclassification lives, and paying a salary does not close it.

The Fair Labor Standards Act exempts employees working in a bona fide executive, administrative or professional capacity, and outside salespeople, under section 13(a)(1). The Department of Labor writes those exemptions out in 29 CFR part 541, and in its May 2026 rulemaking it describes the structure in its own words: the regulations generally require three tests to be met, the duties test, the salary basis test, and the salary level test.

Two of those are questions about money. The third is a question about what the person does all day, and it is the one that decides real cases.

Nearly everything written about this subject spends its length on the money. That is not stupid, because the money is what moved. The salary level was raised, scheduled to rise again, struck down in court twice, and finally deleted from the Code of Federal Regulations on May 15, 2026. It is still the wrong emphasis. An employer can clear both money tests and still have the classification wrong.

First, the word “generally”

The Department’s own sentence says the three tests generally have to be met, and that hedge is not decoration. Several routes to exemption skip the money tests:

• The salary requirements do not apply to teachers, to people holding a valid licence to practise law or medicine who are actually practising, or to medical interns and residents. That exception is written into the salary regulation itself.
• Outside sales employees have no salary test at all. Their exemption is decided purely on duties.
• Computer employees can qualify while paid hourly, at not less than $27.63 an hour, which satisfies neither a salary basis nor a weekly salary level.
• Highly compensated employees take a different trade: a much higher earnings threshold paired with a reduced duties requirement.

So a low-paid outside salesperson can be exempt, and a well-paid carpenter cannot. Anyone applying a flat “under the threshold, therefore owed overtime” rule will get both of those backwards. The three-test frame below is the standard executive, administrative and professional route, which is where most disputes actually sit.

The three tests, in the order you can apply them

One: salary basis. Is the pay fixed?

The employee has to be paid a predetermined and fixed salary that is, in the Department’s phrasing, not subject to reduction because of variations in the quality or quantity of work performed. The test is about what the pay arrangement permits, not only about what happened last month.

Improper deductions are governed by § 541.603 of the same part, and the rule is narrower than the folklore. An employer loses the exemption where the facts show an actual practice of making improper deductions, and even then the loss runs only for the period of those deductions and only for employees in the same job classification working for the same managers responsible for them. Isolated or inadvertent deductions do not cost the exemption if the employer reimburses them. There is also a safe harbour: an employer with a clearly communicated policy prohibiting improper deductions, a complaint mechanism, reimbursement and a good faith commitment to comply keeps the exemption unless it willfully keeps docking after complaints.

Two: salary level. Is it enough?

The operative federal floor is $684 per week. The regulation adds detail most summaries drop: the requirement is equally met by $1,368 paid biweekly, $1,482 paid semimonthly, or $2,964 paid monthly, and the shortest period of payment that can satisfy it is one week. Employers may also count nondiscretionary bonuses and incentive payments, including commissions, paid annually or more often, toward up to 10% of the standard salary level.

Two things about that table. The territorial rates apply only to employers other than the federal government, so a federal employer in Guam is held to $684. And all of these are exclusive of board, lodging or other facilities, which is the qualifier that matters most in exactly the places the lower rates apply.

Reading a threshold is fast. The salary basis test is slower than it looks, because an actual practice of deductions is a pattern rather than a single pay stub. Neither is the hard part.

Three: duties. What does the person do?

Here the answer stops being arithmetic. The regulation asks for the employee’s primary duty, defined as the principal, main, major or most important duty performed, judged on all the facts in the particular case and with the major emphasis on the character of the job as a whole. The factors it lists, expressly not as a closed set, are the relative importance of the exempt duties compared with other duties, the amount of time spent on exempt work, the employee’s relative freedom from direct supervision, and the relationship between that salary and the wages paid to other employees for the kind of non-exempt work the employee is doing.

The job title is not one of them. Within 29 CFR 541 there is a section headed “Job titles insufficient”, and it is two sentences long in full: a job title alone is insufficient to establish the exempt status of an employee, and status must be determined on whether the employee’s salary and duties meet the requirements of the part. That is § 541.2, in its entirety.

Note also what the time factor does and does not say. Spending more than 50 percent of the time on exempt work will generally satisfy the requirement, but time is not the sole test, and nothing requires an exempt employee to cross that line. Someone under it can still be exempt if the other factors point that way.

The jobs that pass on money and fail on duties

The regulation supplies its own example, and it is the one worth memorising. Assistant managers in a retail establishment who supervise staff, direct their work, order merchandise, manage a budget and authorise payment of bills may have management as their primary duty even while spending more than half the shift running a cash register. But assistant managers who are closely supervised and earn little more than the non-exempt employees around them generally would not satisfy the primary duty requirement.

Same title, same register shifts, opposite answers, and what separates them is supervision and the pay differential over their own staff rather than the absolute salary. That is the duties test working as designed, and it is why no threshold figure answers this question.

Two categories are also carved out regardless of pay. FLSA-covered, non-management employees in production, maintenance, construction and similar occupations, such as carpenters, electricians, mechanics, plumbers, iron workers, operating engineers, longshoremen and labourers, are entitled to overtime no matter how well paid. Neither do the exemptions reach police officers, fire fighters, paramedics, correctional officers, park rangers and similar first responders, regardless of rank or pay level.

The rule that took effect, and then stopped existing

This is the part that makes a stale page dangerous, so it is worth being exact about the sequence.

On April 26, 2024 the Department published a rule raising the thresholds on a schedule, with automatic updates every three years after that.

The first step was not a proposal. The 2024 rule took effect on July 1, 2024, except as applied to the State of Texas as an employer, so $844 per week was the binding federal salary level for most employers from that day. Any page saying $684 applied continuously since 2020 is wrong about that summer.

Four lawsuits followed. On November 15, 2024 the US District Court for the Eastern District of Texas vacated the rule. On December 30, 2024 the Northern District of Texas did the same. Those orders were final judgments and remained so after the Fifth Circuit dismissed the appeals on May 5 and 7, 2026. The second step, $1,128 per week, therefore never became binding on anyone.

On May 15, 2026 the Department published a technical amendment removing the vacated text from the CFR and republishing the regulatory text as it stood before July 1, 2024. That restores the 2019 final rule of September 27, 2019, which took effect January 1, 2020 and moved the level from $455 to $684 per week, and the highly compensated threshold from $100,000 to $107,432 per year.

Then there is the interval. The vacatur landed on November 15, 2024, but the CFR was not corrected until May 15, 2026, which is

18 months in which the published regulation carried the text of a vacated rule rather than the text the Department was actually enforcing. The Department gave that as its reason for making the correction effective immediately instead of after the usual delay: leaving it could mislead employees and employers who consult the CFR to learn about their rights and responsibilities.

The practical residue for a reader today: payroll templates, vendor pages and handbooks written between late 2024 and mid 2026 may quote $1,128 per week in good faith. That figure was never enforceable against anyone.

Your state can set a harder test on the same facts

Federal law is a floor. A state can demand more, and the tests are not always built the same way even where they use the same words.

California is the clearest case. Labor Code 515 does not itself impose a test on employers. It authorises the Industrial Welfare Commission to establish executive, administrative and professional exemptions, and attaches conditions to that authority: the employee must be primarily engaged in the duties meeting the exemption, must customarily and regularly exercise discretion and independent judgment, and must earn a monthly salary of no less than two times the state minimum wage for full-time employment, with full-time defined as 40 hours per week. The operative obligations reach employers through the wage orders the Commission issues under that authority.

Then the statute defines its own term. For the purposes of that subdivision, primarily means more than one-half of the employee’s worktime.

Read that against the federal rule. Federal law says in terms that nothing requires an exempt employee to spend more than half the time on exempt work. California writes the opposite into a statute. A job can be exempt federally and non-exempt in California on identical facts, which is the case a page quoting only the federal standard sends a reader into blind.

Classification is the first of the six questions on our what you owe path for a reason. Get it wrong and the answers to the other five stop meaning anything, because every one of them assumes you already know whether this person is owed overtime at all.

What is not checked here

This page is about the federal structure and it does not stand in for a state analysis.

• No state salary figures appear above. California ties its exempt salary to a multiple of its own minimum wage, so the amount moves whenever that rate moves. This run did not verify the current California minimum wage, so no California dollar figure is printed. The rule is quoted, the arithmetic is not.
• Only California is used as the state contrast. New York, Washington, Colorado and Alaska also set their own exempt salary levels or duties tests. None of them were checked here.
• The wage orders themselves were not read. The California section relies on the statute. The Industrial Welfare Commission orders that actually bind employers were not opened for this article.
• The full duties tests are not reproduced. Each of the executive, administrative, professional and computer exemptions has its own list of duties elements. This page covers the structure and the primary duty standard that runs through all of them.
• Other FLSA exemptions are out of scope. The Act carries many more, for farmworkers, some drivers and seasonal operations among others. This is only the white collar exemptions under section 13(a)(1).
• The court orders were not read. The dates and holdings here come from the Department’s account of them in the Federal Register notice, not from the opinions.

Not legal advice

This is a report of what the regulations and the Federal Register say as of the verified date at the top of this page. It is not legal advice. Whether one particular job is exempt turns on facts about one workplace that this site does not have, and the duties test in particular cannot be answered from a job description. If something here is wrong or has gone out of date, that is worth telling us, and contact is the way.