Exempt or non-exempt: overtime and minimum wage
Exempt takes a $684-a-week salary and exempt duties. Marcus has neither, so his 16 October overtime hours cost $363.46.
The tax rules decide what's withheld. A second law decides what's owed: the Fair Labor Standards Act sets a federal minimum wage — $7.25 an hour — and requires overtime for hours over 40 in a workweek, for every employee it doesn't exempt. A state or city minimum that's higher still applies; the FLSA excuses no one from it.
Exempt is a test, not a title
An exempt employee under the executive, administrative and professional exemptions passes two tests: a salary of at least $684 a week, and primary duties that meet the exemption. A 2024 rule that would have raised the salary level was vacated, and the Department of Labor enforces the 2019 level. Fail either test and the employee is non-exempt, however they're paid.
Salaried, but below the weekly salary level — and picking and packing is not an exempt duty, so he would be owed overtime at any salary. He's salaried and non-exempt — which is allowed, and common. His salary is meant to cover 40 hours a week, so his regular rate is his weekly salary over 40: 2,625 × 12 ÷ 52 ÷ 40, or about $15.14 an hour.
Overtime, one workweek at a time
Overtime is measured in a workweek — a fixed, recurring seven days — and never averaged across two. Hours over 40 are paid at not less than 1.5 times the regular rate. In October the holiday stock arrives in the first and last weeks, and Marcus works 16 hours of overtime across 2 of them: $363.46 on top of his salary, paid with October's payroll.
Salaried exempt
- Good at
- No overtime, and no hours to track for pay
- Predictable payroll
- Watch for
- Both tests must hold; a title alone fails
- The duties are judged on the job as it's done, not the job description
- Best for
- Roles whose primary duty is managing, or exempt professional or administrative work, paid above the salary level
Salaried non-exempt
- Good at
- A predictable paycheck for the employee
- Overtime only in the weeks it happens
- Watch for
- Hours still have to be recorded, every workweek
- Overtime on top of the salary, at 1.5 × the regular rate
- Best for
- A steady full-time role that doesn't meet an exemption
Hourly non-exempt
- Good at
- Pay matches the hours worked
- Simplest overtime math
- Watch for
- Payroll moves with the timesheet
- Every hour must be paid at least the minimum wage that applies
- Best for
- Variable or part-time hours
Wrong
Marcus averaged 42 hours over those two weeks, so 2 hours of overtime.
Right
Marcus worked 50 hours one week and 34 another: 10 hours of overtime are owed for the first.
Each workweek stands alone. A short week doesn't pay for a long one.
Exempt takes the salary level and the duties. Everyone else gets at least the minimum wage that applies and time and a half for hours over 40 in each workweek, salaried or not.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- Federal statute
- 29 U.S.C. §207(a)(1) (opens in a new tab)Overtime: hours over forty in a workweekFree to read
- 29 U.S.C. §218(a) (opens in a new tab)A higher state or local minimum wage still appliesFree to read
- Federal regulation
- 29 CFR §778.104 (opens in a new tab)Each workweek stands aloneFree to read
- 29 CFR §778.105 (opens in a new tab)What a workweek isFree to read
- 29 CFR §778.113 (opens in a new tab)The regular rate of a salaried employee — a monthly salary × 12 ÷ 52Free to read
- IRS guidance
- IRS Pub. 15 (2026), What's New — Qualified overtime compensation (opens in a new tab)The overtime deduction, 2025 to 2028 — still subject to FICAPDF · Free to read
- Federal agency guidance
- US DOL, Wage and Hour Division — FLSA (opens in a new tab)The Fair Labor Standards Act: minimum wage, overtime, recordsFree to read
- US DOL, Fact Sheet #17A (rev. September 2019) (opens in a new tab)Exemption for executive, administrative, professional, computer and outside sales employees — $684 a weekFree to read
- US DOL, overtime rulemaking (2024 rule vacated; 2019 regulations restored May 2026) (opens in a new tab)The salary level in force: the 2019 rule's $684 a weekFree to read
- Background reading — not an authority
- Wikipedia, “Fair Labor Standards Act of 1938” (opens in a new tab)Fair Labor Standards Act of 1938Free to read
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Exempt employeeAn employee the FLSA's overtime and minimum-wage rules don't cover — for the executive, administrative and professional exemptions, one paid a salary of at least $684 a week whose primary duties meet the exemption's test. A job title decides nothing
- Non-exempt employeeAn employee owed at least the minimum wage and overtime at one and one-half times the regular rate for hours over 40 in a workweek — salaried or hourly
- WorkweekA fixed and regularly recurring period of 168 hours — seven consecutive 24-hour periods — that overtime is measured in. Hours are never averaged across workweeks: 30 hours one week and 50 the next owe ten hours of overtime
- Regular rateThe hourly rate overtime is computed from. For a salary meant to cover 40 hours, the weekly salary divided by 40 — a monthly salary is first turned weekly by multiplying by 12 and dividing by 52
- Minimum wageThe lowest hourly rate an employer may pay a non-exempt employee — $7.25 federally since July 24, 2009. A higher state or city minimum still applies; the FLSA excuses no one from it