Avoiding Common Employer Pitfalls: Employer Risks in Classifying Employees as Exempt vs. Non-Exempt

Properly classifying employees as exempt or non-exempt under the Fair Labor Standards Act (FLSA) and state wage and hour laws is critical for compliance. A misclassification can result in costly liability for unpaid overtime, penalties, and attorneys’ fees. As wage-and-hour litigation and audits by state departments of labor continue to rise, employers must understand the most common missteps when determining exempt status.

1. Assuming All Employees Paid on a Salary Basis Are Exempt

One of the most widespread errors employers make is assuming that paying an employee a salary rather than an hourly wage automatically makes them exempt from minimum wage and overtime requirements. In reality, to qualify for most exemptions under the FLSA and state wage and hour laws, employees must meet both a salary basis test and a job duties test. Without satisfying the specific duties requirements for exemptions like executive, administrative, or professional, a salaried employee may still be entitled to minimum wage and overtime.

2. Failing to Apply the Correct Duties Test

Each exemption has its own duties test, and they are narrowly interpreted. For example, below are very brief summaries of a few of the exempt duties requirements under the FLSA:

• Executive Exemption – requires that the employee manage the enterprise or a department, regularly direct the work of at least two full-time employees, and have authority over hiring or firing.
• Administrative Exemption – requires work related to management or general business operations and the exercise of discretion and independent judgment.
• Professional Exemption – requires advanced knowledge in a field of science or learning acquired through specialized instruction.

Each of the above duties tests contain legal nuances which must be applied. For example, “discretion and independent judgment” is a term of art that has been interpreted and applied by courts in different factual situations. Misunderstanding or misapplying these duties standards is a major source of litigation and enforcement.

3. Misclassifying Based on Job Title or Industry Norms

Titles like “Manager” or “Supervisor” do not automatically confer exempt status. What matters is the actual job duties performed. For example, many lower level supervisors, assistant managers, or working foreman, may not be exempt. Similarly, relying on how other companies in the industry classify similar roles can be risky—especially if those practices are legally incorrect.

4. Ignoring State Law Nuances

Many states, including California and New York, have their own exemption criteria that are more restrictive than federal law. Employers must ensure that employees meet both federal and applicable state requirements to be properly classified as exempt.

5. Failing to Monitor Classification as Roles Evolve

Employees’ responsibilities often change over time, especially in fast-paced or growing organizations. An employee who was initially correctly classified as exempt may no longer meet the exemption if their duties shift toward routine or non-discretionary tasks. Employers should periodically reassess roles to ensure compliance.

6. Overlooking Minimum Salary Thresholds

In addition to the duties test, most exempt employees must be paid at least the minimum salary required under the FLSA. Some states impose higher thresholds as well. Misclassification based on outdated salary levels is a growing compliance risk.

Key Takeaway for Employers

Exemption classification is a legal determination—not a business decision—and must be handled with care. Employers should:

• Conduct regular audits of exempt classifications.
• Evaluate both salary level and duties.
• Stay up to date on federal and state law developments.
• Document the rationale for each exemption decision.

Rimon PC’s Labor & Employment team regularly assists employers in conducting exempt classification audits and advises employers on exempt status, wage-and-hour compliance, and litigation defense when claims arise. Please reach out to us to assist you with evaluating your employee exempt classifications or for any employment law compliance needs.

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon, P.C. or its affiliates.

Tara Humma is a Litigation attorney who focuses her practice on labor and employment matters. Tara has over a decade of experience representing public and private employers of all sizes in states across the country. Tara represents clients in all phases of employment litigation, from initial pleadings, discovery, and motion practice to trial preparation and appeals. Her experience includes a broad range of litigation matters including, but not limited to, claims brought under Title VII of the Civil Rights Act, the Americans with Disabilities Act (ADA) (including accessibility cases), the Family and Medical Leave Act (FMLA), the Fair Labor Standards Act (FLSA), breach of contract cases related to employment contracts and restrictive covenants and various other state and federal employment laws. Read more here.