Managing Misclassifications: Why Salaried Doesn’t Automatically Mean Exempt
- mmonroe7
- Jun 2
- 4 min read
Written by Stephanie Burford, PHR, HR Manager at Advisor HR
Many people mistakenly believe that being a salaried employee automatically means being classified as exempt. However, the two are not the same. A salaried employee is someone who receives a fixed amount of pay on a regular schedule (such as weekly, biweekly, or monthly) regardless of the number of hours worked. An exempt status is a legal classification under the Fair Labor Standards Act (FLSA) that excludes certain employees from overtime pay requirements, but only if they meet specific exemption criteria.
According to the Wage & Hour Division Fact Sheet #17A, the FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at not less than time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek. It goes on to explain that the FLSA provides an exemption from both minimum wage and overtime pay if employees meet the executive, administrative, professional, or outside sales, or certain computer test. To qualify as an exempt employee, an employee must meet every requirement in one of the classifications listed below to be classified as an exempt employee.
In 2024 there was a Final Ruling around raising the minimum salary threshold with the first increase taking place July of 2024 and the second increase taking place January 2025. However, on November 15, 2024, the U.S. District Court overturned this final rule and kept the exempt minimum salary level at $684 per week ($35,568/year). On the link provided in the resources below, it states in the first paragraph in gray, “The Department will update this notice with additional information as it becomes available.” Since nothing has changed, this Fact Sheet has not been updated to reflect the April 26, 2024 Final Rule threshold. It is not clear when/if the Department of Labor will be revisiting The Final Rule, but at this time the minimum salary threshold is the $684 per week ($35,568/year).
It is important to note that some states may have a higher salary threshold than the federal minimum. In this case, employers must comply with both federal and state laws, and follow whichever offers the greater benefit to the employee.
The exemption requirements can be found at https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime and are outlined below. For an employee to be considered exempt, they must meet all the conditions of at least one exemption test.
Below is an overview of the three most common tests from the Wage & Hour Division Fact Sheet #17A.
Executive Exemption
To qualify for the executive employee exemption, all of the following tests must be met:
The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $684 per week;
The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
Administrative Exemption
To qualify for the administrative employee exemption, all of the following tests must be met:
The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684 per week;
The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
Professional Exemption
To qualify for the learned professional employee exemption, all of the following tests must be met:
The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684 per week;
The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
The advanced knowledge must be in a field of science or learning; and
The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
To qualify for the creative professional employee exemption, all of the following tests must be met:
The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684 per week;
The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
To qualify for the learned professional employee exemption, all of the following tests must be met:
The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684 per week;
The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
The advanced knowledge must be in a field of science or learning; and
The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
To qualify for the creative professional employee exemption, all of the following tests must be met:
The employee must be compensated on a salary or fee basis (as defined in the regulations) at a
rate not less than $684 per week;
The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
Misclassifications are very common and employees may be denied overtime pay they are legally entitled to. Are you concerned about potential employee misclassifications? If you have questions or need support, Advisor HR is here to assist you every step of the way.
Comments