Salaried Non-Exempt: What It Means for Employers

What it means in practice

Salaried non-exempt is a payroll label, not a statutory term, for an employee who receives a fixed salary but is not exempt from the overtime rules of the Fair Labor Standards Act (FLSA). Section 7(a) bars employing a covered employee for more than 40 hours in a workweek unless the excess hours are paid "at a rate not less than one and one-half times the regular rate at which he is employed" (29 U.S.C. 207(a)(1)). The Department of Labor (DOL) regulations add that the Act "does not require employers to compensate employees on an hourly rate basis"; earnings may be set by salary, but overtime "must be computed on the basis of the hourly rate derived therefrom" (29 CFR 778.109).

Why a salaried employee can be non-exempt. The executive, administrative and professional exemptions require both that the employee's duties meet a test and that the employee be paid on a salary basis at not less than the required level, and DOL Fact Sheet #17A says "job titles do not determine exempt status." The regulation is direct: "A job title alone is insufficient to establish the exempt status of an employee" (29 CFR 541.2). An employee whose salary is below the level, or whose primary duty does not meet a duties test, is non-exempt even if paid a salary. See exempt vs. non-exempt for the duties tests.

The salary level in force. DOL's earnings-thresholds page lists a standard salary level of $684 per week, equivalent to $35,568 a year; $107,432 a year for highly compensated employees; and $455 per week in Puerto Rico, Guam, the U.S. Virgin Islands and the Northern Mariana Islands, or $380 in American Samoa. The Federal Register notice of May 15, 2026 explains that a 2019 rule set the $684 level effective January 1, 2020; that a 2024 rule would have raised it to $844 per week on July 1, 2024 and $1,128 on January 1, 2025; that the Eastern District of Texas vacated the 2024 rule on November 15, 2024 and the Northern District of Texas on December 30, 2024; and that after appeals were dismissed in May 2026, DOL republished the pre-2024 text. DOL notes this does not foreclose future rulemaking, and its page announced no newer level when we checked in October 2026.

Finding the regular rate for a fixed workweek. If an employee is paid solely a weekly salary, the regular rate "is computed by dividing the salary by the number of hours which the salary is intended to compensate" (29 CFR 778.113(a)). The regulation's example is a $350 salary for a 35-hour week: the regular rate is $10, so the employee is owed $10 for each of the first 40 hours and $15 for each hour after that. A salary for a longer period is first reduced to its weekly equivalent: monthly salary times 12 divided by 52, or semimonthly salary times 24 divided by 52. A $1,560 monthly or $780 semimonthly salary for 40-hour weeks therefore gives a $9 regular rate (778.113(b)). Under section 7(g)(3), the parties may instead divide a monthly salary by the working days in the month and then by the hours in the normal workday, but the result cannot fall below the minimum wage.

What goes into the regular rate. The regular rate "cannot be left to a declaration by the parties"; it is drawn from what is actually paid (29 CFR 778.108). DOL Fact Sheet #56A gives the formula as total compensation in the workweek, except statutory exclusions, divided by total hours worked. Promised bonuses, attendance bonuses and production bonuses must be included (29 CFR 778.211(c)), while discretionary bonuses, gifts, pay for occasional vacation, holiday or sick days, and business expense reimbursements are excluded (Fact Sheet #23). A bonus that cannot be calculated until later is apportioned back over the weeks in which it was earned, with extra half-time paid for overtime weeks (29 CFR 778.209).

Example 1: 40-hour salary, 45-hour week. This is a Remindax illustration with assumed numbers. An employee earns $900 a week for a 40-hour schedule, so the regular rate is $22.50 ($900 / 40). In a week of 45 hours, the salary covers the first 40 hours and the 5 overtime hours are owed at $33.75 each (1.5 x $22.50), or $168.75, for total pay of $1,068.75. The answer is the same if the salary is stated as $3,900 a month ($3,900 x 12 / 52 = $900) or $1,950 semimonthly ($1,950 x 24 / 52 = $900).

Example 2: salary for fewer than 40 hours. If $875 is agreed to cover a 35-hour week and no more, the regular rate is $25. The FLSA requires overtime only after 40 hours, but in an overtime week overtime "cannot be said to have been paid" until all straight-time pay due under the contract is paid (29 CFR 778.315 and 778.322). In a 42-hour week, our illustration gives $875 plus 5 hours at $25 ($125) plus 2 hours at $37.50 ($75), or $1,075. If the parties instead agree that the salary covers a variable workweek of up to 40 hours, no extra pay is due for hours 36 to 40, and the overtime rate is figured on 40 hours (29 CFR 778.323).

Salary for more than 40 hours. A fixed salary for a regular schedule longer than 40 hours "does not discharge FLSA statutory obligations." In DOL Fact Sheet #23's example, a $405 salary for a 45-hour week gives a $9 regular rate, and the employee is owed an additional $22.50 (5 overtime hours x $4.50). Parties also cannot agree on a fixed amount said to cover straight time and overtime for weeks of varying length, except under a section 7(f) guaranteed-pay contract (29 CFR 778.326).

Short weeks and deductions. When a fixed salary covers a fixed workweek, reducing it by the average hourly rate for hours missed makes the employee, in practice, an hourly employee: a $200 salary for 40 hours becomes $180 for a 36-hour week, and the regular rate is unchanged (29 CFR 778.306(a)). Where the agreement is unclear, a practice of such reductions is "strong, if not conclusive, evidence" that the salary covers a fixed workweek (778.306(b)). Disciplinary deductions are applied after the regular rate is computed, may not cut into minimum wage or overtime, and late time actually worked still counts (29 CFR 778.307).

The fluctuating workweek method. An employer may compute overtime at half-time only if all five conditions in 29 CFR 778.114(a) are met: hours fluctuate from week to week; the fixed salary does not vary with hours worked; the salary covers at least the minimum wage for every hour in the longest weeks; the employer and employee have a "clear and mutual understanding" that the salary covers all hours worked each week, although that understanding need not extend to the calculation method; and overtime is paid at not less than one-half the regular rate. The regular rate is the salary plus any non-excludable extra pay divided by that week's hours. Since a 2020 revision, bonuses, shift premiums and commissions are compatible with the method but must be included in the rate, and occasional disciplinary deductions for willful absence, tardiness or major rule violations are allowed if they do not cut into minimum wage or overtime (778.114(a) and (d)). The method cannot support compliance where overtime hours are paid at a rate no greater than other hours (778.114(c)).

Example 3: fluctuating workweek. The regulation's own example is a $600 salary: weeks of 37.5, 44, 50 and 48 hours give regular rates of $16, $13.64, $12 and $12.50 and total pay of $600, $627.28, $660 and $650 (778.114(b)). As a Remindax illustration, take a $900 salary that meets all five conditions. In a 45-hour week the regular rate is $20 ($900 / 45), and 5 overtime hours at $10 add $50, for $950, compared with $1,068.75 under Example 1's fixed 40-hour arrangement. In a 50-hour week the rate is $18, overtime adds $90 (10 x $9), and pay is $990; $18 is above the $7.25 federal minimum wage (DOL). In a 30-hour week the full $900 is due, because the salary does not vary with hours.

Counting hours and paying on time. A salary does not remove the need to track time. All hours worked in the workweek must be counted (29 CFR 778.315), and "work not requested but suffered or permitted is work time," including work done at home if the employer knows or has reason to believe it is happening (29 CFR 785.11 and 785.12). A rule against unauthorized overtime is not enough; management must enforce it (29 CFR 785.13), and an announcement that unauthorized overtime will not be paid does not remove the right to pay for work actually performed (29 CFR 778.316). The workweek is a fixed, recurring 168-hour period, each workweek stands alone even for employees paid biweekly or monthly, and overtime is normally due on the regular payday for the period in which the workweek ends (29 CFR 778.104 to 778.106). See overtime for the general rules.

Overtime on the 2026 Form W-2. The One, Big, Beautiful Bill Act created an income tax deduction for qualified overtime compensation for 2025 through 2028: the portion of FLSA-required overtime pay that exceeds the regular rate, up to $12,500 a year ($25,000 on a joint return), reduced above $150,000 of modified adjusted gross income ($300,000 joint) (IRS). IRS FS-2026-13 says employers must report it starting in 2026 on the Form W-2 in box 12 with code TT, and that for most employees the weekly amount is hours over 40 times one-half times the FLSA regular rate. In Example 1 that is $56.25 (5 x 0.5 x $22.50); in Example 3's 45-hour week it is $50. Overtime is still subject to income tax withholding, Social Security and federal unemployment tax, and withholding may be reduced only if the employee furnishes an updated Form W-4. Overtime paid beyond what the FLSA requires, such as under a state daily overtime law, is not qualified overtime compensation.

Where states differ. As one example, the California Department of Industrial Relations overtime FAQ says a nonexempt employee generally earns one and one-half times the regular rate after 8 hours in a workday and 40 in a workweek, and double time after 12 hours in a day, with special rules for the seventh consecutive day. For a salaried employee, California converts monthly pay to weekly (times 12, divided by 52) and divides by the legal maximum regular hours of 40, or by agreed regular hours if fewer, such as 35. The same FAQ says a salaried employee "must be paid overtime unless they meet the test for exempt status as defined by federal and state laws." California's minimum wage is $16.90 an hour from January 1, 2026 (DIR), and DOL Fact Sheet #56A notes the regular rate may not fall below a higher applicable state or local minimum wage. Other states have their own rules; DOL lists state labor offices.

Recordkeeping. For each non-exempt employee, 29 CFR 516.2(a) requires, among other items, the day and time the workweek begins, the regular hourly rate for any overtime week and the basis of pay, hours worked each workday and each workweek, straight-time earnings, overtime premium pay, additions and deductions, total wages and the pay date and period. For employees on fixed schedules, the employer may record the schedule and note exceptions (516.2(c)). Payroll records are kept at least 3 years, and time cards, wage rate tables and deduction records 2 years (29 CFR 516.5 and 516.6). These records feed payroll.

What is at stake. An employer that violates section 7 is liable for the unpaid overtime "and in an additional equal amount as liquidated damages" (29 U.S.C. 216(b)). Claims generally must be brought within two years, or three years for a willful violation (29 U.S.C. 255(a)).

Questions employers ask. Does the FLSA require overtime for weekend or holiday work? Not as such; DOL says overtime is required only when the weekend or holiday hours push the week past 40. Is there a cap on hours? DOL says the Act sets no limit on weekly hours for employees aged 16 and older. Confirm specifics with DOL, your state labor department or a qualified professional.

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