How to determine whether an employee is non-exempt (and what that means)
Calling someone a “manager,” paying a salary, or offering equity does not automatically make that person exempt from overtime. Under the federal Fair Labor Standards Act, the practical starting point is the opposite: treat an employee as non-exempt unless the employer can identify and support a specific exemption under the law that applies.
For many startup office roles, that means testing the employee’s actual primary duties, pay method, and pay level against the executive, administrative, professional, computer, or outside-sales rules. Then the company must separately check the law of every state or locality that applies. A classification that works under federal law can still fail under a more protective state rule.
Information current as of Oct. 7, 2026.
In brief
A non-exempt employee is generally entitled to the FLSA’s minimum-wage and overtime protections, including overtime at one and one-half times the employee’s regular rate for hours worked over 40 in a workweek. “Non-exempt” does not mean “hourly,” “junior,” or “not important.” A salaried employee can be non-exempt, and a highly paid employee can still be non-exempt if the applicable duties test is not met.
The safest classification process is to identify a specific exemption, test actual duties rather than the title, confirm any salary-basis and salary-level requirements, apply state and local law, and document the decision. If any required element is missing, classify the employee as non-exempt and administer pay and timekeeping accordingly.
What “non-exempt” actually means
“Exempt” is shorthand for exempt from one or more wage-and-hour requirements. In the context most employers mean, a non-exempt employee remains covered by the federal overtime rule in the FLSA’s overtime provision.
At the federal level, that usually means the employer must:
pay at least the applicable minimum wage for all hours worked;
pay the required overtime premium after 40 hours in a workweek;
keep accurate records of hours worked and compensation; and
count compensable work even when it happens outside the employee’s normal schedule or away from the office.
These are minimum federal rules. State or local law may require a higher salary threshold, a different duties test, daily overtime, meal or rest protections, or other rules that are more favorable to the employee.
Do not confuse two different classification questions
Before asking whether a worker is exempt, confirm that the person is an employee. Employee-versus-contractor status asks whether the person is properly treated as an employee at all. Exempt-versus-non-exempt status asks which wage-and-hour rules apply after the person is treated as an employee.
Those questions use different legal tests. A worker does not become an independent contractor merely because the company calls the worker one, and an employee does not become exempt merely because the company pays a salary. Valle Legal’s employee-versus-contractor guide addresses the first question; this article focuses on the second.
A seven-step framework for deciding whether an employee is non-exempt
1. Start with the presumption that the employee is non-exempt
The employer should be able to name the precise exemption it is relying on and prove every required element. Section 13(a)(1) of the FLSA creates the familiar exemption for bona fide executive, administrative, professional, outside-sales, and certain computer employees, while other statutory exemptions apply to particular occupations or industries.
Do not begin with “this feels like a salaried role.” Begin with “which exemption, if any, could fit these facts?”
2. Identify the correct exemption before testing the role
The most common startup classifications fall under the Part 541 regulations, but each category asks a different question:
Executive: Is the employee’s primary duty management, do they customarily and regularly direct at least two full-time employees or the equivalent, and do they have meaningful hiring or personnel authority?
Administrative: Is the employee’s primary duty office or non-manual work related to running the business or serving a customer’s business, with discretion and independent judgment on matters of significance?
Learned professional: Does the employee perform predominantly intellectual work requiring advanced knowledge in a field of science or learning customarily acquired through prolonged specialized instruction?
Creative professional: Does the employee’s primary duty require invention, imagination, originality, or talent in a recognized artistic or creative field?
Computer employee: Does the employee perform the systems-analysis, programming, software-engineering, or similarly skilled duties described in the regulation?
Outside sales: Is the employee’s primary duty making sales or obtaining orders, and are they customarily and regularly working away from the employer’s place of business?
These are legal tests, not title templates. A “Head of Operations” might satisfy the administrative exemption, the executive exemption, both, or neither. A “Senior Engineer” might qualify under the learned-professional or computer rules, but seniority and technical skill alone do not decide the question.
3. Check the salary level when the exemption requires it
For the common executive, administrative, and professional exemptions, current federal regulations generally require compensation of at least $684 per week, exclusive of board, lodging, or other facilities. The Department of Labor’s 2026 technical amendment restored that operative threshold after federal courts vacated the 2024 overtime rule.
That federal number is only a floor. Some states use higher thresholds or different methodologies. An employer with remote employees should not apply one headquarters-based threshold across the workforce without checking where each employee works.
4. Check the salary basis, not just annual compensation
Meeting the salary level is not enough. When an exemption requires salary-basis pay, the employee generally must receive a predetermined amount each pay period that is not reduced because of variations in the quality or quantity of work.
Improper deductions can jeopardize an exemption. There are detailed rules for permissible deductions, additional compensation, fee-basis arrangements, and certain hourly or time-based structures. Do not assume that an annual offer-letter number answers the salary-basis question.
5. Test the employee’s real primary duty
Current regulations say a job title is insufficient. The analysis turns on what the employee actually does, considered as a whole.
Relevant facts include:
which duties are most important to the business;
how much time the employee spends on exempt and non-exempt work;
how much freedom the employee has from direct supervision;
what decisions the employee can make or recommend;
whether those decisions concern matters of significance; and
how the employee’s pay compares with employees performing the non-exempt work.
Time is useful, but it is not the only factor. An employee may spend less than half of the week on exempt duties and still satisfy a primary-duty test in some circumstances. Conversely, giving occasional supervisory tasks to someone whose main job is hands-on production work does not necessarily make the role exempt.
6. Check special rules and exceptions
Not every exemption uses the same salary test. Outside-sales employees, certain teachers, and qualifying lawyers or doctors are examples of roles with different compensation rules. The computer exemption has its own duties test and can permit an alternative hourly-pay route. Separate highly compensated employee and business-owner rules may also matter.
There are also exemptions outside Part 541 for particular industries and activities. Because an exemption can remove important protections, do not borrow a test from a different category or rely on a payroll-system label.
7. Apply state and local law and document the result
Federal law expressly allows more protective state or municipal standards. The governing state analysis may turn on where the employee works, including a remote work location, rather than the company’s state of incorporation.
For each role, keep a short classification record that identifies:
the exemption relied on;
the compensation method and threshold;
the actual primary duties and decision-making authority;
the state and local rules reviewed;
the effective date of the analysis; and
the person responsible for rechecking the classification when duties, pay, or location changes.
What happens when an employee is non-exempt?
Non-exempt status is an administrative and pay practice, not a judgment about professional value. The company should build systems that accurately capture all compensable time and calculate overtime from the employee’s regular rate.
A non-exempt employee can still receive a salary. But the salary does not eliminate overtime obligations. The company must understand what hours the salary covers, track hours worked, and calculate any additional overtime required by federal and applicable state law. WHD Opinion Letter FLSA2026-1 confirms that an employer may choose to classify an employee as non-exempt even when an exemption might otherwise be available, as long as the company complies with minimum-wage and overtime requirements.
A practical implementation checklist includes:
a written timekeeping policy that matches actual work practices;
a reliable process for recording remote, after-hours, travel, training, and on-call time when compensable;
payroll rules for bonuses, commissions, and other amounts that may affect the regular rate;
manager training not to permit unrecorded work;
a process for correcting missed time; and
a documented review when a role or work location changes.
Common startup classification mistakes
Treating salary as the exemption. Salary may be one element, but it does not replace the duties test.
Letting the title do the work. “Manager,” “director,” “administrator,” and “engineer” are not self-executing legal categories.
Using the administrative exemption for anyone who performs administrative tasks. The legal test focuses on management or general business operations plus discretion and independent judgment on matters of significance, not whether the employee works in an office.
Assuming equity changes wage-and-hour status. Stock options or other equity awards do not make an employee exempt.
Ignoring role drift. A classification that was supportable when an employee managed a team may become wrong after a reorganization, or vice versa.
Using one national answer. State and local rules may be more protective, and remote hiring can create new wage-and-hour obligations.
Failing to track time because the employee is salaried. If the employee is non-exempt, the employer still needs reliable hours-worked records.
Why careful classification matters
Misclassification can produce liability for unpaid overtime and other wages, an additional equal amount as liquidated damages in many FLSA cases, attorneys’ fees and costs, and separate state-law remedies. It can also complicate diligence, payroll cleanup, employee relations, and a future financing or acquisition.
The better approach is preventive: analyze the role before the offer is finalized, align the job description with the work actually expected, configure payroll and timekeeping correctly, and revisit the classification when responsibilities change.
A practical takeaway
If the company cannot identify a specific exemption and support every required element under both federal and applicable state or local law, the prudent classification is non-exempt. Build the pay and timekeeping process around that result rather than using salary, title, or founder expectations as a shortcut.
If your company is hiring, restructuring roles, or preparing for financing or diligence, consider discussing the classification with qualified employment counsel and coordinating the result with your company’s compensation documents, employment agreements, payroll systems, and corporate records. Valle Legal can help coordinate the corporate workstream and involve specialist counsel where appropriate.
Frequently asked questions
Can a salaried employee be non-exempt?
Yes. Salary describes a pay method; exemption describes a legal status. A salaried non-exempt employee generally remains entitled to overtime and accurate hours-worked records.
Can an employee be exempt if they earn more than $684 per week?
Possibly, but pay alone is not enough. The employee must satisfy the duties and salary-basis requirements of a specific exemption, plus any more protective state or local test.
Does a “manager” title make someone exempt?
No. The regulations expressly say job titles are insufficient. For the executive exemption, the employee’s actual primary duty, supervision of other employees, and personnel authority are central.
Can a company classify an employee as non-exempt even if the employee could qualify as exempt?
Generally, yes under federal law. The exemption is something the employer may claim; the FLSA does not require the employer to claim it. The company must then comply with the applicable wage, overtime, and recordkeeping rules.
When should a startup revisit classifications?
Recheck when an employee is hired, promoted, moved to another state, shifted between individual-contributor and management work, given materially different responsibilities, or affected by a reorganization. Periodic review is also prudent because wage-and-hour laws and salary thresholds can change.
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