Exempt vs non-exempt. Who is actually owed overtime?
Calling someone salaried does not make them exempt from overtime. To be exempt, a role generally has to pass three tests, the salary basis, the salary level and the duties test. Get the classification wrong and you can owe years of back overtime plus penalties. Luman Group in Long Branch, New Jersey, explains each test.
This is one of the most expensive mistakes a small employer makes, because it is invisible until it isn't. You pay someone a salary, call them exempt, and never think about overtime. Then one departure and one complaint later, you owe back pay for every hour over 40 they worked. The title on the org chart has nothing to do with it. Three tests do.
What are the three tests that decide it?
To be exempt from overtime, a role generally has to clear all three.
1. Salary basis
The person is paid a fixed salary that doesn't drop based on the quality or quantity of work in a given week. Docking pay for partial days can actually break the exemption.
2. Salary level
The salary meets the current federal minimum threshold, and any higher threshold your state sets. This figure changes, so confirm the number in effect now rather than relying on an old one. A threshold that moved is a common way roles quietly become non-exempt.
3. Duties
The actual day-to-day work fits a recognized exemption, typically executive, administrative or professional. This is where most misclassifications happen. A manager who mostly does the same line work as their team, or a coordinator with no real discretion, often doesn't qualify.
Which mistakes create back pay liability?
- Assuming salaried means exempt. Plenty of salaried employees are legally non-exempt and owed overtime.
- Using a title to dodge overtime. Naming someone assistant manager doesn't change what they actually do.
- Ignoring a state with stricter rules. Several states set higher thresholds or tougher duties tests than federal law.
- Not revisiting it. Roles drift and thresholds change. A classification that was right two years ago may not be now.
Settle who is exempt before it becomes a claim.
The Wage and Hour Kit walks the tests, flags the roles most likely misclassified, and gives you the documentation to back the call. The Offer Letter Builder runs the same check on every new hire.
This guide is general HR information from Luman Group, not legal advice. Employment law varies by state and changes over time. For your own situation, talk to an employment attorney, or call us and we will point you the right way.
Common questions.
Does salaried mean no overtime?
No. Salary is only one of three tests. A salaried employee who doesn't meet the salary level and the duties test is still owed overtime.
What is the current salary threshold?
It is a set federal figure, with some states higher, and it has changed more than once recently. Confirm the number currently in effect rather than relying on a remembered one.
Can I just make a role exempt to avoid overtime?
Only if it genuinely meets all three tests. Classifying a role as exempt that isn't is exactly what creates the back pay exposure.
How far back can an employee claim overtime?
Under federal law, typically two years, and longer if the violation is found willful. Some states, like New Jersey, allow six years.
Tell us what's going on.
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