Key Takeaways

  • The Fair Labor Standards Act (FLSA) governs federal law salary requirements, including rules on exempt and non-exempt classification.
  • Exempt employees are not entitled to overtime pay and must meet the salary level, salary basis, and duties tests.
  • Minimum salary thresholds are changing in 2025, with a phased increase to $58,656 annually by January 2025.
  • Non-exempt employees must receive overtime pay and at least the federal minimum wage, though states may set higher minimums.
  • Employers must follow specific rules regarding wage deductions, meal breaks, and time tracking for salaried workers.
  • Misclassification of employees can lead to significant penalties and back pay obligations.
  • Some employees are covered under state laws or different federal statutes, even if FLSA does not apply.
  • You can consult an employment attorney through UpCounsel to ensure compliance with federal and state salary laws.

Salary Laws

Salary laws are generally cited as part of the Fair Labor Standards Act (FLSA). While most employment types in the United States are governed by the FLSA, some jobs are not. The FLSA was enacted to create two employee classifications to deal with minimum wage and overtime compensations, those employee classifications are exempt and non-exempt employees.

Key Rights for Salaried Employees Under Federal Law

Salaried employees are protected by several key rights under federal law salary regulations, including:

  • Right to earn minimum wage (unless exempt)
  • Right to overtime if classified as non-exempt
  • Right to equal pay for equal work
  • Protection from retaliation for asserting wage rights
  • Access to accurate wage statements (state law may apply)

These protections apply regardless of industry or company size, provided the employer meets the coverage thresholds under the FLSA.

Exclusions From FLSA Coverage

The FLSA does not apply to ALL employment in the United States. There are a particular industries and employment types that are excluded from coverage based on the FLSA overtime provisions. For example, movie theater employees and a lot of agricultural employees are generally not subjected to the FLSA overtime provisions. In addition, most railway workers and truck drivers are governed under different regulation. However, this is not to mean that those workers are not covered by federal labor laws. It just means that the FLSA does not apply as there is another federal labor law that has been enacted to protect those employees. These types of exclusions may be found in Section 213 of the FLSA.

Alternative Federal Statutes Covering Salary

Certain occupations excluded from FLSA are not without protection—they are often governed by other federal statutes. Examples include:

  • Railway workers: Covered under the Railway Labor Act
  • Truck drivers: Regulated by the Motor Carrier Act
  • Federal employees: Often covered under the Civil Service Reform Act

Each statute includes provisions related to wages, hours, and working conditions, ensuring workers in these categories still receive fair treatment—even when outside the FLSA’s scope.

Labor Laws and Salaried Employees

Salaried employees are typically treated as exempt from the ability to earn overtime, but that is not always the case. The overtime exemption laws are simply one factor in the determination of whether an employee should be exempt from overtime. On the other hand, hourly employees are generally compensated based on the number of hours worked in a given pay cycle, while the salaried employee will be compensated on a fixed weekly, monthly or bi-weekly basis. The FLSA establishes the rules on employee compensation, employee classification and overtime rules. The regulations are enforced by the Department of Labor.

Time Tracking and Recordkeeping for Salaried Workers

Even when employees are salaried, federal law salary compliance may still require employers to track time and attendance, especially for non-exempt workers. Employers must:

  • Maintain accurate daily and weekly records of hours worked
  • Document wages paid, including bonuses and deductions
  • Retain payroll records for at least three years as required by the Department of Labor

For exempt employees, while tracking is not mandated, doing so may help resolve disputes about workload, performance, or FMLA eligibility. However, tracking must not be used in a way that results in impermissible deductions.

Exempt or Non-Exempt

There are certain statutory exemptions that may not require the employer to comply with mandatory minimum wage and overtime laws. The FLSA provides two exemption categories. One category is a category in which the employees are exempt from both minimum wage and overtime standards. The other category is one in which the employee is exempt from only the overtime standards. The Department of Labor strictly enforces the classification of employees as exempt or non-exempt. Thus, if you are an employer, you must take great care in ensuring that those employees that you have classified as being exempt employees do in fact meet the definition of exempt.

The Department of Labor will generally require employers who have misclassified employees as being exempt to reimburse those employees for any wages that have been forfeited as a result of the incorrect classification. As a strong deterrent to employers to not misclassify employees, employers can be subjected to criminal prosecution and made to pay a fine of up to $10,000 or on a per violation basis a fine of $1000 based on the employer’s intent.

Most employees are classified as exempt or non-exempt employees depending on the amount of compensation paid, the manner in which that compensation is paid and the type of work the employee currently performs. While there are some exceptions, an exempt employee typically must earn at least $23,600 on an annual basis and also perform those duties laid out in the FLSA that are expected of an exempt employee. Employees are generally required to meet three tests as detailed in the FLSA. Lastly, employees earning in excess of $100,000 in annual compensation are almost certainly classified as exempt.

In addition to exempt employees, there are non-exempt employees. Non-exempt employees are those employees that do not meet the three-part test under the FLSA to be classified as exempt employees will be classified as non-exempt employees. Under the FLSA, minimum wage standards and overtime requirements have been laid out for non-exempt employees. For example, the FLSA details that for employees currently under 20 years of age, the minimum wage cannot be less than $4.25 on an hourly basis over the span of the first three months of employment. If an employer fails to comply with minimum wage and overtime standards, the employer may be subject to imprisonment in the most severe circumstances and monetary punishment in less severe cases. Generally, employees making less than $23,600 per year would most likely be classified as a non-exempt employee. Being a non-exempt employee allows the employee to avail themselves of overtime compensation.

Federal vs. State Salary Law Conflicts

While the FLSA establishes baseline salary protections, many states have stricter wage and hour laws, including higher minimum salary thresholds for exempt status or broader employee protections. For instance:

  • California requires a minimum salary of $66,560 for exempt employees at employers with 26+ employees (2024).
  • New York sets separate thresholds depending on region (e.g., NYC, Long Island).

When federal and state laws conflict, employers must follow the law that provides greater benefit to the employee. This means businesses operating in multiple states must stay informed about state-specific rules that may exceed FLSA standards.

Salary Level Test

Employees may be classified solely on the level of their salary. Employees who currently earn less than $23,600 per year (or $455 per week) would be classified as non-exempt employees. Employees who earn greater than $100,000 are almost certainly considered exempt employees based on salary level.

2025 Salary Threshold Updates

As of 2025, the Department of Labor has finalized updates to the minimum salary level required for certain FLSA exemptions. Effective July 1, 2024, employees must earn at least $43,888 annually ($844 per week) to qualify for exemption from overtime. This threshold will increase again on January 1, 2025, to $58,656 annually ($1,128 per week).

These updates significantly impact how employers classify employees as exempt. Workers earning below these thresholds—even if performing executive, administrative, or professional duties—must be classified as non-exempt and are therefore eligible for overtime pay.

Additionally, for highly compensated employees, the annual salary threshold is increasing from $107,432 to $132,964 in July 2024, then to $151,164 in January 2025. Employers should review salaries and roles to ensure compliance with these federal law salary requirements.

Salary Basis Test

An employee who is compensated on a salary basis is, in essence, guaranteed a specific amount of compensation for work performed during a specific compensation period. A general guideline is that a salary basis employee is paid by dividing their annual compensation by the number of paydays in a given year. A salary basis employees is not impacted if their pay is recorded on an hourly rate basis, so long as the employee earns the guaranteed amount of compensation for the work performed in a given compensation period.

The FLSA salary basis test will only apply to situations in which a salaried employee has experience a reduction in the guaranteed salary amount. Furthermore, if an employer requires an employee to be charged for absences from the workplace, this is not such a reduction in salary as the employee is not obligated to be compensated more than the guaranteed salary, so this will not result in a reduction in pay. While there are a few exceptions, the base compensation of a salaried employee can generally not be reduced based on work quantity or quality. Thus, a salaried employee may not have his/her salary reduced if less work than expect is has been performed by the employee. In addition, a salaried employee cannot have their pay reduced if the employer has not given the employee any work to be done. Employers may, however, reduce the salaried employee’s compensation for disciplinary actions, etc. There is generally a list of permissible and impermissible situations in which an employee’s salary may be reduced. Permissible reductions will not have an impact on the employee’s status as exempt under the FLSA. However, impermissible reductions may have an impact as any employee who has been subjected to a reduction may no longer be considered compensated on a salaried basis and could therefore be classified as non-exempt. Rest assured though, employers have several options to remedy impermissible reductions, so it is not likely that an exempt employee will have their classification changed to non-exempt.

Permissible and Impermissible Salary Deductions

Under federal law salary rules, deductions from exempt employees' pay are generally prohibited unless they fall into permissible categories. Some acceptable deductions include:

  • Full-day absences for personal reasons (excluding sickness or disability)
  • Disciplinary suspensions for major safety violations
  • Initial or final week of employment if not working the full period
  • Unpaid leave under the Family and Medical Leave Act (FMLA)

Impermissible deductions—such as docking pay for partial-day absences or business-related slow periods—can jeopardize an employee's exempt status. If violations occur, the Department of Labor may reclassify the worker as non-exempt, triggering overtime pay obligations and penalties.

The Duties Test

If an employee has met the both the salary level and salary basis tests under the FLSA, he/she must still meet the duties test to be classified as an exempt employee. Such FLSA exemptions are limited to those employees performing high-level work with job duties that qualify them as exempt. When undertaking a review under the duties test, an employee’s job title or job descriptions is of limited utility as the duties test is focused more on the actual role and responsibilities and how the employee’s particular role fits within the organizational framework. The typical categories for job duties that are exempt are administrative, executive and professional.

Exempt Executive Job Duties

If an employee is presently functioning in a role in which he/she is responsible for supervising at least two or more employees, is responsible for management of certain business aspects, and also has substantive input into the hiring, firing or growth of employees, their duties will likely be classified an exempt. Generally, supervision will mean that the employee is required to supervise as an aspect of the employee’s daily responsibilities. The supervision, however, must be over at least two-full time employees or four part-time employees.

FLSA provisions detail a list of those management duties that are typical of an executive job. Duties such as interviewing, training, setting compensation rates, maintaining production metrics, performance evaluation responsibility, handling complaints and disciplinary issues. That said, determining if an employee is acting in a management capacity requires a comprehensive case-by-case review of the employee’s role and responsibilities to determine if the threshold is met. An employee can also be classified as having performed executive job duties through the completion of non-management related tasks.

One final requirement for determining whether an employee can rely upon the executive job duties exemption is to assess the level of input the employee has over personnel-related issues. The employee does not need to be the final decision maker in hiring or firing, for example, but the employee should have significant input into the decision. Lastly, the employee must make a salary of greater than $455 per week to qualify to use the executive job duties exemption.

Exempt Professional Job Duties

A professional job duty is generally defined as one of those jobs that are of the traditional learned professions. Professionals in these jobs include dentists, clergy, doctors, teachers, clergy and architects. These job are generally classified as exempt. Nurses, accountants and engineers are generally included in this classification as their work requires advanced knowledge similar to the knowledge require for the aforementioned traditional professions. Exempt work at the professional level is used to describe work that requires a specialized education and generally involves intellectual capacity as well as the ability to exercise judgment and discretion. In order to be an exempt professional, one must have an education beyond the high school level and usually beyond the college level. Usually advanced degrees are the frequently found degree, but not a necessity if the employee has gained the same level of education through other means. There is also the classification of creative professional, which includes musicians, composers, actors and writers. These jobs are also exempt and are meant to include all employees who work in a profession that requires invention, originality, talent and imagination. Usually, the identification of an exempt professional is non-controversial and usually a fairly routine exercise.

Exempt Administrative Job Duties

The most imprecise definition of the three exempt job categories is the administrative job type.The definition of an exempt administrative job is office work that is related to management or business operations requiring independent judgement and discretion about significant matters. This exemption is designed for those employees functioning at a high-level with a job responsibility of running the business. A guideline that has been used to differentiate those administrative employees from production or operational employees would include the following:

  • Employees involved in making the products a company sells is not administrative
  • Administrative employees support those in production or operational roles
  • Administrative employees are considered members of the staff, rather than line employees

Administrative employees would include human resources, payroll, finance, records management, accounting, quality control, public relations, legal and regulatory compliance. To be considered exempt, these employees must conduct work in an office and consist of non-manual and significance. Those in a clerical role meet the requirement for office work, but are not exempt given that they lack work that is significant.

Clerical employees perform office or nonmanual support work but are not administratively exempt. Exempt administrative employment will usually involve the employee to exercise discretion and judgement while also have the ability and authority to make decision that are independent and have an impact on the business. A question often asked is done the exempt employee have the authorization to draft and interpret company policy and procedures. Also considered is whether the employee’s work is major in relation to the total business operations of the company.

An example of exempt administrative work could be an employee whose role is as a buyer for a department store. That employee performs office work that is not manual. It also includes work that is key to the operation of the store and it is crucial to the store’s operations running smoothly. The buyer exercises a fair amount of judgment and discretion, given decisions on quantity and quality of merchandise and calculating the necessary margins on the clothing to be profitable.

Frequently Asked Questions

  1. What is the federal law salary threshold for 2025?
    As of January 1, 2025, the minimum salary for most exempt employees under the FLSA is $58,656 annually ($1,128 per week).
  2. Are salaried employees always exempt from overtime?
    No. Salary alone does not determine exemption. Employees must meet the salary level, salary basis, and duties tests to be considered exempt.
  3. Can salaried employees receive overtime?
    Yes, if they are classified as non-exempt under the FLSA or state laws, they are entitled to overtime for hours worked beyond 40 in a week.
  4. How does federal salary law differ from state laws?
    Federal law sets the baseline. States can enforce higher minimum wages or stricter exemption rules. The law most favorable to the employee applies.
  5. What happens if an employer misclassifies an employee as exempt?
    They may owe back wages, overtime compensation, penalties, and in severe cases, face criminal charges or civil fines.

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