Exempt vs Non-Exempt Employees
Quick Answer
Exempt employees are salaried workers not entitled to overtime pay, while non-exempt employees must be paid overtime (1.5x their regular rate) for hours worked beyond 40 per week. The classification is determined by salary level and job duties under the Fair Labor Standards Act (FLSA). In 2025, the salary threshold for overtime exemption is $58,656 per year ($1,128/week). Workers earning below this threshold are generally non-exempt, regardless of their job title.
The Three Tests for Exemption
To be classified as exempt (no overtime), an employee must meet ALL three:
1. Salary Basis Test
You must be paid a predetermined salary that does not vary based on hours worked.
2. Salary Level Test (2025)
Your salary must be at least $58,656 per year ($1,128 per week). This threshold was updated by the DOL and represents a significant increase from prior levels.
3. Duties Test
Your primary job duties must fall into one of these categories:
| Exemption Type | Typical Roles |
|---|---|
| Executive | Managers, directors who supervise 2+ employees |
| Administrative | HR, finance, operations professionals using independent judgment |
| Professional | Lawyers, doctors, engineers, teachers, accountants |
| Computer | Systems analysts, programmers, software engineers (earning $58,656+) |
| Outside sales | Sales reps who primarily work outside the office |
Real Example With Actual Numbers
Compare two employees at a company in Texas:
Sarah — Non-Exempt ($55,000/year, works 45 hours/week)
- Regular hourly rate: $55,000 / 2,080 = $26.44/hour
- Weekly pay: 40 hours x $26.44 = $1,057.69
- Overtime: 5 hours x $39.66 (1.5x) = $198.32
- Weekly total: $1,256.01
- Annual with OT: $65,312 (vs $55,000 base)
Mike — Exempt ($62,000/year, works 45 hours/week)
- Weekly pay: $62,000 / 52 = $1,192.31
- Overtime: $0 (exempt)
- Annual: $62,000
Despite Mike's higher base salary, Sarah actually earns $3,312 more because of overtime pay. Her effective hourly rate working 45 hours is $26.44 base + overtime, while Mike's effective rate drops to $23.72/hour ($62,000 / (45 x 52)).
Use the SalaryHog calculator to see take-home pay at different salary levels.
The Salary Threshold Matters
The $58,656 threshold determines whether borderline employees get overtime. If your salary is between $40,000 and $58,656, you are likely non-exempt and entitled to overtime — even if your employer calls you a "manager."
| Salary | Below Threshold? | Overtime Eligible? |
|---|---|---|
| $45,000 | Yes | Yes (non-exempt) |
| $55,000 | Yes | Yes (non-exempt) |
| $58,656 | At threshold | Depends on duties |
| $65,000 | No | Depends on duties |
| $85,000 | No | Depends on duties |
Even above $58,656, you must meet the duties test. A $70,000 employee whose primary work is routine data entry may still be non-exempt.
Common Misclassification Issues
Employers sometimes misclassify employees as exempt to avoid paying overtime. Red flags include:
- Being called "salaried" but earning less than $58,656
- Having a manager title but not actually supervising anyone
- Performing the same tasks as hourly coworkers
- Having your pay docked for partial-day absences (violates salary basis)
If you believe you are misclassified, you may be owed back overtime pay.
Tax Implications
There is no tax difference between exempt and non-exempt status — both pay the same federal income tax, FICA, and state taxes. The difference is purely about overtime eligibility and how your pay is calculated.
Overtime pay is taxed at the same rate as regular income — there is no special overtime tax. Your employer may withhold more from overtime checks, but any over-withholding is refunded when you file.
See how your salary translates to take-home pay at the SalaryHog calculator or convert your salary to an hourly rate.