Exempt Employee

Last updated: October 9, 2026.

An exempt employee is one who falls outside the Fair Labor Standards Act’s minimum wage and overtime protections. They’re paid a fixed salary for the job rather than for hours worked, and they get no overtime premium, however long the week runs.

“Exempt” means exempt from those specific FLSA provisions — not exempt from employment law generally. Exempt employees still have FMLA rights, anti-discrimination protection, and whatever leave entitlements state law provides.

See also: Non-Exempt Employees

The three-part test

Classification isn’t a choice. An employee is exempt only if all three conditions are met:

1. Salary level — paid at or above the federal minimum (and any higher state minimum)
2. Salary basis — paid a predetermined amount each pay period that doesn’t vary with quality or quantity of work
3. Duties — actual job duties fit one of the recognised exemption categories

Job title is irrelevant. Paying someone a salary doesn’t make them exempt, and calling someone a manager doesn’t either. The duties test looks at what the person actually does.

The salary threshold, and what happened to it

The federal standard salary level is $684 per week ($35,568 a year). The highly compensated employee threshold is $107,432 in total annual compensation, including at least $684 a week on a salary basis.

That number has a recent history worth knowing, because a great deal of published guidance is wrong about it.

A 2024 DOL rule raised the threshold to $844 a week from July 2024, with a second step to $1,128 a week ($58,656) due in January 2025 and automatic triennial increases after that. In November 2024 a federal court in the Eastern District of Texas vacated that rule nationwide, holding that the DOL had leaned too heavily on the salary test at the expense of the duties test. The threshold reverted to $684.

The matter closed in 2026: the Fifth Circuit dismissed the final appeal in May 2026, and the DOL issued a final rule rescinding the 2024 regulation, effective 15 May 2026, formally restoring the 2019 levels and removing the automatic increase mechanism.

State thresholds often exceed the federal one. California, New York, Washington, Colorado and Alaska all set higher minimums, and some — California notably — apply a stricter, quantitative duties test as well. The higher standard always applies.

The duties categories

• Executive — manages the enterprise or a department, directs two or more employees, and has genuine authority over hiring and firing
• Administrative — office or non-manual work directly related to management or general business operations, exercising independent judgement on significant matters
• Professional — learned (advanced knowledge in a field of science or learning) or creative
• Computer employee — specific systems analysis, programming and software engineering roles
• Outside sales — customarily works away from the employer’s place of business making sales

Why exempt status changes how you handle leave

This is where exemption stops being a payroll question and becomes a leave-management one.

Because exempt employees are paid for the job rather than the hour, you generally cannot dock salary for partial-day absences. An exempt employee who works any part of a workweek must receive the full weekly salary, with limited exceptions. Deductions are permitted in full-day increments for personal absences, for sickness under a bona fide plan, and for disciplinary suspensions that meet specific conditions.

Two consequences matter in practice.

You can deduct from the leave bank, but not from salary. For a partial-day absence, charge the time against the employee’s accrued PTO — the salary stays whole and the exemption is safe. That’s the standard, compliant approach. The limit is the obvious one: once the PTO balance is exhausted, you still cannot reduce the salary for a partial day.

FMLA is the explicit exception. Under 29 CFR 825.206, an employer may deduct from an exempt employee’s salary for hours taken as intermittent or reduced-schedule FMLA leave without affecting exempt status. This is a carve-out from the usual rule, and it applies only to genuine FMLA leave at a covered employer for an eligible employee. It doesn’t extend to other partial-day absences.

Misclassification is expensive. If an employee treated as exempt fails any part of the test, they were non-exempt all along — and the employer owes back overtime, often across everyone in the same role.

Read more: How PTO Works for Exempt and Non-Exempt Employees

This entry is general information, not legal advice. Classification depends on actual duties and on state law — take advice before reclassifying anyone.