You classify an employee as exempt and stop paying overtime. Later a claim arrives, or a Department of Labor investigator starts asking questions. The Fair Labor Standards Act still requires most employees to receive time-and-a-half for hours worked over 40 in a workweek. The exemptions that allow you to avoid that obligation are narrow and heavily litigated.

In 2026 the federal salary threshold for the main white-collar exemptions sits where it has been since 2020. Understanding both the salary level and the duties tests, along with the mistakes that most often create liability, is essential for any employer that wants to stay compliant.

The Current Federal Salary Threshold

To qualify for the executive, administrative, or professional exemption, an employee must generally be paid on a salary basis at not less than $684 per week. That figure annualizes to $35,568. The Department of Labor restored this level in May 2026 after federal courts vacated a 2024 rule that would have raised the threshold substantially.

A separate highly compensated employee test applies when total annual compensation reaches $107,432, provided at least $684 per week is paid on a salary or fee basis and the employee customarily performs at least one exempt duty. Meeting the salary number alone is never enough. The employee must also satisfy the applicable duties test.

The Three Main White-Collar Exemptions

The executive exemption requires that the employee’s primary duty is management of the enterprise or a recognized department, that the employee customarily directs the work of at least two other employees, and that the employee has authority to hire or fire or whose recommendations carry particular weight.

The administrative exemption covers employees whose primary duty is office or non-manual work directly related to management or general business operations, and who exercise discretion and independent judgment on matters of significance.

The professional exemption splits into learned professionals (work requiring advanced knowledge in a field of science or learning customarily acquired by prolonged specialized instruction) and creative professionals. Computer employees have their own specialized test that can be met either by salary or by an hourly rate of at least $27.63.

Outside sales employees and certain other categories have different rules and often no salary threshold.

Salary Basis and Impermissible Deductions

An exempt employee must receive a predetermined salary that is not subject to reduction because of variations in the quality or quantity of work performed. Deductions for partial-day absences, quality of work, or ordinary disciplinary suspensions can destroy the exemption for the entire period in question.

Full-day absences for personal reasons or sickness under a bona fide plan are generally permitted. Jury duty, witness duty, and temporary military leave have special rules. Employers that make improper deductions risk losing the exemption for the affected employees.

Common Violations That Create Liability

Misclassification remains the most frequent problem. Employers often assume that paying a salary or giving a managerial title is enough. Courts and the DOL look at actual day-to-day duties. An assistant manager who spends most of the week ringing up customers or stocking shelves rarely qualifies as an executive.

Failure to include all required payments in the regular rate is another recurring error. Non-discretionary bonuses, commissions, and certain other forms of compensation must usually be factored into the overtime calculation for non-exempt employees. Treating an employee as exempt and then making partial-day deductions creates dual problems.

Off-the-clock work—answering emails after hours, preparing before a shift, or working through lunch—still counts as hours worked. Automatic meal-period deductions that do not reflect actual break time generate claims. Collective actions based on these practices remain common.

State Law Can Be Stricter

The FLSA sets a floor. Several states impose higher salary thresholds or different duties requirements. California, for example, maintains a significantly higher minimum salary for exemption. Employers operating in multiple states must satisfy both federal law and the stricter state standard where it applies. Relying solely on the federal $684 figure in a high-threshold state is a compliance failure.

Practical Steps to Reduce Risk

Review classifications regularly. Job duties change. An employee who was properly exempt two years ago may no longer meet the primary-duty test. Document the analysis. Keep job descriptions accurate and aligned with actual work.

Train managers on what constitutes hours worked and on the limits of permissible deductions from exempt salaries. Audit payroll practices for regular-rate calculations, especially when bonuses or commissions are involved.

When in doubt, treat the employee as non-exempt and pay overtime. The cost of overtime is usually lower than the cost of a misclassification claim that includes liquidated damages and attorneys’ fees.

Staying Current in 2026

The federal salary threshold is stable for now at $684 per week. Duties tests continue to drive most disputes. State law overlays add complexity for multi-state employers. The employers that avoid problems are those that treat exemption status as an ongoing compliance obligation rather than a one-time decision made at hiring.

Examine your current classifications against both the salary level and the actual duties performed. Correct errors promptly. Clear policies, accurate timekeeping for non-exempt staff, and careful handling of salary deductions for exempt staff remain the most effective protections under the FLSA.

FAQ

1. What is the federal overtime salary threshold in 2026?
$684 per week ($35,568 per year) for the standard executive, administrative, and professional exemptions. The highly compensated employee threshold is $107,432 in total annual compensation.

2. Is paying a salary enough to make an employee exempt?
No. The employee must also meet the duties test for the specific exemption and be paid on a proper salary basis.

3. Can I dock an exempt employee’s salary for a partial-day absence?
Generally no. Improper deductions can destroy the exemption. Full-day deductions for personal reasons are usually permitted.

4. Do state laws differ from the FLSA?
Yes. Some states set higher salary thresholds or impose additional requirements. Employers must comply with the more protective standard.

5. What are the most common overtime violations?
Misclassifying employees as exempt when duties do not qualify, failing to pay for all hours worked, and incorrectly calculating the regular rate when bonuses or commissions are involved.