Exempt vs. Nonexempt Employees in 2026: Salary Threshold, Duties Tests and Common Mistakes

An employee is exempt from overtime only if the person is paid on a salary basis at or above the required level and performs duties that fit a specific exemption. Everyone else is nonexempt and must be paid at least minimum wage and 1.5 times the regular rate for hours over 40 in a workweek. In 2026, the federal white-collar salary threshold is $684 per week ($35,568 per year).

Misclassification is one of the most common and costly wage and hour errors. This guide explains the current thresholds, the three parts of the test, the mistakes the DOL sees most often and what to track so your classification decisions hold up. This is general information, not legal advice: check with counsel or your state labor department for your situation.

The 2026 federal salary threshold

For the executive, administrative and professional exemptions, the federal salary level is $684 per week, or $35,568 per year. For highly compensated employees the annual total compensation threshold is $107,432.

The DOL issued a 2024 rule that would have raised these figures, but a Texas federal court vacated it in November 2024, and the DOL removed it from the CFR effective May 15, 2026. The 2019 levels are in force again. If you updated pay for the 2024 numbers, you can keep those pay levels, but they are no longer the federal minimum.

If you are not sure which threshold applies to a specific employee, ask your payroll provider or counsel to confirm it in writing, because the answer can differ by state and by exemption category. Keep that confirmation with the employee's classification file so the decision can be explained later.

State thresholds can be much higher

Several states set their own salary thresholds, and they are higher than the federal level. California, New York and Washington are the best-known examples, and some of these adjust annually. Because the numbers change, verify the current figure with the state agency before you rely on it.

When state and federal rules differ, the employee gets the benefit of the higher one. An employee who meets the federal threshold but not your state's can still be nonexempt. For a broader look, see state wage and hour laws that go beyond the FLSA.

The three parts of the test

Exemption generally requires all three of the following:

1. Salary basis: the employee receives a predetermined amount each pay period that is not reduced because of the quality or quantity of work.

2. Salary level: the amount meets or exceeds the federal threshold, or the higher state threshold that applies.

3. Duties test: the employee's primary duties fit the exemption, such as managing a department, exercising discretion on significant matters or applying advanced specialized knowledge.

Failing any one of the three means the employee is nonexempt. Job titles do not decide exemption. Calling someone a manager does not make the person exempt if most of the day is spent on routine work.

The duties test is where most disputes are decided. Ask what the person actually does in a typical week, who makes the decisions and how much of the day is spent on exempt work compared with routine tasks such as stocking, answering phones or entering data. Employees and investigators describe duties in concrete terms, and your documentation should be equally concrete.

What a misclassification costs

Example: you pay an assistant manager a salary of $900.00 per week. If his duties do not qualify, he is nonexempt. Suppose he works 50 hours a week and the salary was meant to cover 40. His regular rate is $900.00 / 40 = $22.50. Overtime for 10 hours is 10 x $22.50 x 1.5 = $337.50 per week.

Over a year, 52 weeks x $337.50 = $17,550.00 for one employee, before liquidated damages (an equal amount) and attorney fees. The lookback is 2 years, or 3 for willful violations. Multiplied across a team in a collective action, the exposure grows quickly.

Common mistakes the DOL sees

- Treating salary as the whole test. Paying above the threshold does not exempt anyone whose duties do not qualify.

- Relying on titles. A job title or a signed agreement saying the employee is exempt does not control the outcome.

- Docking pay improperly. Deductions from an exempt employee's salary for partial-day absences can threaten the salary basis.

- Ignoring state rules. Meeting the federal threshold is not enough if your state sets a higher one.

- Never reviewing. Duties change over time, and a role that qualified at hire may not qualify three years later.

Time records are also useful evidence of how a role really works. If a salaried manager clocks 55 hours a week and spends most of that time covering shifts on the floor, the records tell a story that a job description cannot hide. That is a reason to review the role, not a reason to stop recording.

Why tracking time still matters for borderline roles

If you are not sure that a role qualifies, track hours. Time records protect you in both directions: if the person is later found nonexempt, you can show exactly what was worked, and if the person is exempt, the data can show workload and support your duties analysis. The federal rules on records are summarized in FLSA timekeeping requirements.

Also remember that there is no way to opt out of overtime by agreement. Even if an employee signs a document accepting a salary, a nonexempt employee is still owed overtime.

A quick annual review process

Once a year, list every salaried employee and note the salary, the state, the main duties and the applicable exemption. Compare the salary against the federal and state thresholds, and ask the supervisor whether the person spends most of the time on exempt work. Document the answer. Where the answer is no or uncertain, reclassify the role as nonexempt and track time, or restructure the job.

Reclassifying is not an admission of wrongdoing. Doing it proactively, with a clear explanation to the employee, is far better than being forced to do it after a complaint or an investigation, as described in our DOL audit guide.

How SimpleWorkshift Helps With Classification Compliance

SimpleWorkshift gives you accurate hours for the employees you classify as nonexempt, with GPS-verified time entries captured from the iOS or Android app or the web, and automatic overtime calculations, including night shift differentials. You can set a work schedule per employee and watch time entries and exceptions in real time.

For roles you are still evaluating, custom reports and dashboards show who is regularly working long weeks, which helps you decide whether a role needs a closer look. Try it free for 30 days at simpleworkshift.com. There are no contracts and you can cancel anytime.