On this page
- What exempt and non-exempt mean
- Exempt vs non-exempt employees compared
- The three tests for exempt status
- Example: one salary, two results
- Salaried non-exempt employees
- What misclassifying an employee can cost
- Do you need to track exempt employees' hours?
- How to set exempt status in TimeClick
- Exempt vs non-exempt FAQ
Short answer: Non-exempt employees must be paid overtime, at least 1.5 times their regular rate, for every hour over 40 in a workweek. Exempt employees aren't owed overtime. To be exempt under federal law, most employees must be paid a salary of at least $684 a week and do work that passes an executive, administrative, professional or similar duties test.
What exempt and non-exempt mean
"Exempt" means exempt from the overtime rules of the Fair Labor Standards Act (FLSA), the federal wage and hour law. An exempt employee can work 50 hours in a week and earn the same salary as in a 40-hour week.
"Non-exempt" means the overtime rules apply. Most hourly employees are non-exempt. Some salaried employees are non-exempt too, because a salary alone doesn't make anyone exempt.
When people search for "salary exempt," they usually mean a salaried employee who is exempt from overtime. That only works if the employee passes all three tests below.
Exempt vs non-exempt employees compared
| Exempt | Non-exempt | |
|---|---|---|
| Overtime pay | Not required | At least 1.5 times the regular rate for hours over 40 in a workweek |
| How they're paid | A set salary (some computer employees can be paid hourly) | Hourly, or a salary plus overtime |
| Minimum pay | $684 a week federally, higher in some states | At least minimum wage for every hour worked |
| Duties test | Must pass one | Doesn't apply |
| Federal hours records | Not required | Required: hours each day and each workweek |
| Breaks under federal law | No requirement | No requirement; short breaks of about 5 to 20 minutes count as paid work time |
| Salary deductions for absences | Limited to the cases the DOL allows | Paid for the hours worked |
Sources: DOL Fact Sheet #17A, DOL salary levels, DOL breaks and meal periods, checked Nov 10, 2026.
The three tests for exempt status
An employee is exempt only if they pass all three tests. If one fails, the employee is non-exempt and owed overtime.
1. Salary basis test
The employee gets a set amount each pay period that you don't cut because of the quality or amount of work. If they do any work in a week, they get the full salary for that week.
You can deduct from an exempt salary only in the cases the DOL lists, such as:
- Full-day absences for personal reasons other than sickness or disability
- Full-day absences for sickness or disability under a real sick leave plan
- Unpaid disciplinary suspensions of one or more full days for workplace conduct violations
- The first and last week of employment, when you can pay for the days worked
You can't deduct for days when you have no work to give someone who is ready and able to work. An "actual practice" of improper deductions can cost you the exemption.
Source: DOL Fact Sheet #17G, salary basis, checked Nov 10, 2026.
2. Salary level test
The federal salary level for executive, administrative and professional employees is $684 a week ($35,568 a year). Nondiscretionary bonuses and incentive pay, paid once a year or more often, can cover up to 10% of it.
Other federal levels:
- Highly compensated employees: at least $107,432 a year in total pay, including at least $684 a week in salary, plus at least one exempt duty done regularly.
- Computer employees: a $684 weekly salary, or at least $27.63 an hour.
- Outside sales: no salary level.
A 2024 DOL rule would have raised these levels. A court vacated it, and on May 14, 2026, the DOL announced it had removed that rule's text from the regulations and restored the 2019 rules, so $684 a week stays in place.
Sources: DOL salary levels, DOL Fact Sheet #17G, DOL news release, May 14, 2026, checked Nov 10, 2026. For the history, see the federal overtime salary threshold.
State salary levels. Some states set a higher level, and you have to meet the higher one. In California, an exempt employee must earn at least twice the state minimum wage for full-time work. With the 2026 minimum wage of $16.90 an hour, that's $16.90 x 2 x 2,080 hours = $70,304 a year ($1,352 a week). Sources: California DLSE exemptions FAQ and California minimum wage FAQ, checked Nov 10, 2026. Other states with higher levels are listed in our overtime laws guide.
3. Duties test
The employee's main job has to fit one of these exemptions. Job titles don't decide it.
| Exemption | Main duty must be |
|---|---|
| Executive | Managing the business or a recognized department, regularly directing two or more full-time employees (or the equivalent), with authority to hire and fire or recommendations that carry real weight |
| Administrative | Office or non-manual work tied to management or general business operations, using discretion and independent judgment on matters of significance |
| Learned professional | Work that needs advanced knowledge in a field of science or learning, usually gained through a long course of specialized study |
| Creative professional | Work that needs invention, imagination, originality or talent in a recognized artistic or creative field |
| Computer employee | Work as a systems analyst, programmer, software engineer or similar, such as applying systems analysis or designing and testing systems or programs |
| Outside sales | Making sales or getting orders, while regularly working away from your place of business |
Source: DOL Fact Sheet #17A, checked Nov 10, 2026.
Example: one salary, two results
An office manager earns $40,000 a year and spends most of the day running the office, supervising two full-time assistants and hiring staff.
- Weekly pay: $40,000 / 52 = $769.23
- Federal level: $684 a week. $769.23 is above it, so the federal salary test is met.
- California level for 2026: $70,304 a year. $40,000 is below it.
In a state with no higher level, this manager can be exempt, because the salary and duties tests are both met. In California, the same manager is non-exempt and owed overtime.
Salaried non-exempt employees
You can pay a non-exempt employee a salary. You still owe overtime for hours over 40 in a workweek, so you need their hours.
For a salary that covers a set number of hours, the regular rate is the weekly salary divided by those hours.
Example: an assistant earns $800 a week for a 40-hour week and works 45 hours.
- Regular rate: $800 / 40 = $20 an hour
- Overtime rate: $20 x 1.5 = $30 an hour
- Overtime pay: 5 hours x $30 = $150
- Total for the week: $950
Source: DOL Fact Sheet #23, checked Nov 10, 2026. More pay setups are in how to calculate overtime pay rates.
What misclassifying an employee can cost
If you treat a non-exempt employee as exempt, you can owe the unpaid overtime plus an equal amount in liquidated damages. The DOL can generally recover 2 years of back wages, or 3 years when the violation is willful.
Common mistakes:
- Treating every salaried employee as exempt
- Giving someone a "manager" title when most of their day is routine work
- Using the federal salary level in a state with a higher one
- Cutting an exempt salary for partial-day absences
Source: DOL Handy Reference Guide to the FLSA, checked Nov 10, 2026. For contractor vs employee questions, see how to classify employees.
Do you need to track exempt employees' hours?
Federal rules don't require daily hours records for exempt executive, administrative, professional or outside sales employees. You still keep their pay records.
Many employers track exempt hours anyway:
- To manage PTO and sick leave balances
- To support the full-day absence deductions the DOL allows
- To have records ready if an employee's status is ever questioned
- Because a state rule or company policy calls for it
For non-exempt employees, hours each day and each workweek are required. See should you track salaried employees' hours for more.
Exempt status also matters for the federal overtime tax deduction. Exempt employees have no qualified overtime, even if you choose to pay them extra for long weeks. See no tax on overtime.
How to set exempt status in TimeClick
TimeClick lets you set each employee's employment type (full time, part-time, temporary or salary) and turn off overtime for exempt staff. In the employee's record, under Time Actions, clear "Allow Employee to Earn Overtime." With that box cleared, all of the employee's hours count as regular hours. Step-by-step instructions are in specifying employment type and exemptions.
For non-exempt staff, TimeClick totals hours and flags overtime on every Hours Report before you export payroll. See timesheet and payroll reports or start the 14-day free trial.
Exempt vs non-exempt FAQ
What is the difference between exempt and non-exempt employees?
Non-exempt employees must be paid at least 1.5 times their regular rate for hours over 40 in a workweek. Exempt employees aren't owed overtime, but they must be paid a salary of at least $684 a week and pass a duties test.
What does salary exempt mean?
It means a salaried employee who is exempt from federal overtime rules. They must be paid on a salary basis, earn at least $684 a week ($35,568 a year) or your state's higher level, and do work that passes a duties test.
Can a salaried employee be non-exempt?
Yes. If a salaried employee earns less than the salary level or their duties don't fit an exemption, they're non-exempt. You pay their salary plus overtime for hours over 40 in a workweek.
Can an hourly employee be exempt?
Rarely. Computer employees can be exempt at $27.63 an hour or more, and outside sales employees have no salary test. Most hourly employees are non-exempt.
What is the federal exempt salary level in 2026?
$684 a week, or $35,568 a year. Highly compensated employees need at least $107,432 a year in total pay. Some states, such as California, set a higher level.
Do exempt employees get paid for holidays and sick days?
Federal law doesn't require paid time off for anyone. If an exempt employee works any part of a week, you generally pay the full salary for that week, with limited exceptions for full-day absences.
Do I have to track exempt employees' hours?
Federal rules don't require hours records for exempt employees. Many employers track them anyway for PTO, attendance and proof of status. Non-exempt employees' hours must be recorded every day.
What happens if I misclassify a non-exempt employee as exempt?
You can owe the unpaid overtime plus an equal amount in liquidated damages, generally for 2 years, or 3 years if the violation was willful.
