Two employees, both salaried, both working 55 hours a week. One is legally owed overtime pay for those extra hours, the other is not. The difference is not the job title and it is not the word “salaried” on the offer letter. It comes down to two tests: how much the employee is paid, and what the employee actually does. Getting the math wrong is one of the most common and most expensive payroll mistakes a small business can make.
The Salary Threshold Test
Federal law under the Fair Labor Standards Act sets a minimum salary level that an employee must be paid to qualify as exempt from overtime. Below that level, the employee is entitled to overtime regardless of duties.
| Category | Salary threshold | Overtime status |
|---|---|---|
| Standard exempt employee | At least $684 per week ($35,568/year) | May be exempt if duties test also passes |
| Highly compensated employee | At least $107,432 per year | Easier to classify exempt with minimal duties test |
| Below the threshold | Under $684 per week | Non-exempt — overtime required |
Note that these are the long-standing federal figures; some states set a higher threshold, and a state threshold always wins when it is more generous to the employee.
The Duties Test
Passing the salary test is not enough on its own. The employee’s actual job must fall into an exempt category, most commonly executive, administrative, or professional.
| Exemption | What the role must involve |
|---|---|
| Executive | Primary duty is managing the business or a department, and regularly directs two or more employees |
| Administrative | Office work directly related to management or general business operations, exercising independent judgment |
| Professional | Work requiring advanced knowledge (like law, engineering, or accounting) or creative talent |
A salaried employee who spends most of the day doing the same manual tasks as hourly staff does not pass the duties test, no matter how much they are paid. Job titles are irrelevant — the Department of Labor looks at what the person actually does.
A Worked Example
An office manager earns $800 per week, manages two front-desk staff, and hires and schedules them. Salary test: $800 exceeds the $684 threshold, so it passes. Duties test: managing a department and directing two employees meets the executive exemption. Result: exempt, no overtime owed.
Now change one number. The same office manager earns $650 per week. The salary test fails immediately, so the employee is non-exempt and must be paid 1.5 times their regular rate for every hour over 40, even though the duties are identical. At 55 hours, that is 15 overtime hours. The effective hourly rate is $650 / 40 = $16.25, so overtime pay is 15 x $16.25 x 1.5 = $365.63 per week on top of the salary.
Why “Salaried” Does Not Mean “Exempt”
Many employers assume that putting someone on a fixed salary removes the overtime obligation. It does not. The salary method of payment is just one input. If the pay falls below the threshold, or the duties do not fit an exemption, the employee is owed overtime and the employer may owe back pay, liquidated damages, and penalties for every week the error continued.
Checking Your Own Numbers
Before assuming a role is exempt, it helps to convert between weekly, annual, and hourly figures to see exactly where the pay lands relative to the threshold. The hourly-to-salary calculator turns a weekly or hourly rate into an annual figure so it can be compared directly to the exemption line, and the overtime pay calculator works out the 1.5x amount for the extra hours.
Frequently Asked Questions
Can an employer raise a salary just to hit the threshold? They can, but the duties test still applies, so paying above the line does not automatically make a role exempt.
Does the threshold change often? The federal figure is updated periodically, and several states already require higher salaries, so it is worth rechecking each year.
Is overtime always time and a half? Time and a half is the default for hours over 40 in a workweek, though some states add daily overtime rules on top.
Leave a Reply
You must be logged in to post a comment.