This is one of the most expensive mistakes a small employer makes, because it’s 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 over-40 hour they worked. The title on the org chart has nothing to do with it. Three tests do.
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.
The mistakes that create back-pay liability
- Assuming salaried = 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’s exempt — before it’s a claim
The Wage & Hour Kit walks the tests, flags the roles most likely misclassified, and gives you the documentation to back the call. Our Offer Letter Builder runs the same check on every new hire.
See the Wage & Hour Kit →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’s the current salary threshold?
It’s a set federal figure (with some states higher) that 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?
Typically two years, and longer if the violation is found willful — which is why the liability adds up fast.