Exempt or Non-Exempt: The Classification That Decides Your Records

Every timekeeping obligation flows from this one decision. Classify someone as exempt and you keep no daily hours for them. Get the classification wrong, and you have years of unrecorded overtime with no records to rebut a claim about it.

For a product-oriented explanation of alternative overtime calculations, see this guide from Monitask.

The federal exemption framework is summarised in the U.S. Department of Labor FLSA guidance.

That combination — the liability and the absence of evidence — is why misclassification is the most expensive error in wage and hour law.

General information, not legal advice. Take advice from employment counsel licensed in the states where you employ people.

The three tests

An employee must satisfy all three to be exempt under the executive, administrative or professional exemptions.

1. Salary basis. A predetermined, fixed amount not reduced because of variations in the quality or quantity of work.

2. Salary level. That amount meets the applicable threshold.

3. Duties. The work actually performed falls within a recognised exemption.

Failing any one makes the employee non-exempt, regardless of title, job description, or what the offer letter said.

The current federal threshold

$684 per week — $35,568 a year.

That figure has a history worth knowing, because a large amount of published guidance is out of date. A 2024 rule would have raised it substantially in stages. After litigation, the Department of Labor revised its regulations in May 2026 to restore the pre-2024 amount, and the 2019 threshold is again the governing federal standard.

For highly compensated employees, total annual compensation of $107,432 including a salary of at least $684 per week.

The DOL has signalled an intention to review the rule. Any change would go through normal rulemaking, so this is worth monitoring rather than treating as settled.

State thresholds change the answer

The point multi-state employers miss most often.

Where a state sets a higher threshold, the more protective state level applies. California's is roughly double the federal figure — twice the state minimum wage on a 40-hour week, which puts it well above $1,300 per week.

The practical consequence: an employee correctly classified as exempt in one state can be non-exempt in another at exactly the same salary. For remote workers this is now routine, and it is a live problem for any employer whose staff have moved since 2020. See timekeeping for remote and hybrid staff.

Several states raise their thresholds on January 1, and at least one changes mid-year. A single annual review misses the mid-year ones.

The duties tests, briefly

Salary gets you past the first two hurdles. Duties decide the rest, and this is where most misclassification actually happens.

Executive. Primary duty is managing the enterprise or a recognised department; customarily directs the work of at least two full-time employees; hiring and firing recommendations carry particular weight.

Administrative. Primary duty is office or non-manual work directly related to management or general business operations, including the exercise of discretion and independent judgment on significant matters.

Professional. Advanced knowledge in a field of science or learning, customarily acquired by prolonged specialised instruction — or work requiring invention, imagination or talent in a recognised artistic field.

Further exemptions exist, including outside sales and certain computer employees.

"Primary duty" means the principal, main or most important duty — not something the person does occasionally. A shift supervisor who spends most of their time doing the same work as their team is a weak candidate for the executive exemption whatever their title.

"Discretion and independent judgment on significant matters" is narrower than administrative work in the everyday sense. Following established procedures carefully is not discretion.

The recordkeeping consequence

This is the part specific to timekeeping, and it is what makes the exposure so large.

For exempt employees you are not required to record daily hours, so most employers do not. When a classification is later found to be wrong:

• The employee is owed overtime for every week they worked more than 40 hours, across the lookback period
• You have no records, because you were not required to keep any
• Under Anderson v. Mt. Clemens Pottery, where the employer's records are inadequate, the employee may establish hours by just and reasonable inference, and the burden shifts to the employer to disprove it

So the employee's recollection becomes the starting point, and you are arguing against it with nothing. See FLSA recordkeeping.

Add liquidated damages, a two-year lookback extended to three for willful violations, attorney's fees, and state penalties. Then note that misclassification is rarely individual — if one assistant manager is misclassified, all of them are, and that is a collective action.

Should you track hours for exempt staff?

A common question with a straightforward answer.

You may. Recording hours for exempt employees does not by itself destroy the exemption, provided the salary basis is preserved — the salary is not reduced for variations in hours worked.

There are good reasons to. Project costing, client billing, capacity planning, and — relevantly here — evidence if a classification is ever challenged. An employer with records showing a genuinely exempt employee working 41 hours is in a materially better position than one with nothing.

The risk is in what you do with it. Docking pay for short hours, or treating the record as an attendance requirement, can undermine the salary basis. Keep the record and leave the pay alone.

The common misclassifications

Assistant managers who mostly do line work. Title says management; duties say otherwise.

Administrative staff without real discretion.

Everyone in a small company put on salary. Common, and straightforwardly wrong.

Salaried employees below the threshold. The easiest error to find in an audit, and it is found first.

Inside sales treated as exempt. The outside sales exemption requires being customarily and regularly away from the place of business.

Remote employees in a higher-threshold state. The newest category and the fastest growing.

A review worth running annually

1. List every salaried employee with weekly salary and work state
2. Flag anyone below the applicable threshold — federal or state, whichever is higher
3. Test duties against what the person actually did last month, not against the job description
4. Look hardest at supervisors who perform line work, coordinators, specialists, and any title containing "assistant"
5. Document the basis for each exempt classification in writing
6. Tie the review to state threshold changes, most of which land on January 1
7. Get counsel involved on anything ambiguous

If you find a misclassification, do not simply reclassify going forward and hope. There is back pay exposure, and how the correction is handled and communicated matters. Take advice on remediation before acting — an employee reclassified with no explanation and no back pay has both a grievance and a clear claim.