How does the duties test for exempt employees work?

In the US, classifying your employees correctly as exempt or non-exempt is essential. Their status determines whether or not they are entitled to overtime, and if you get it wrong you can face fines, penalties, and legal action.

The good news is that you don’t need a law degree to get it right. You just need to understand the rules and apply them clearly.

In this article, we’ll break down salary exempt requirements, explain the exempt duties test, and walk through the three factors that determine exempt or non-exempt status. So let’s dive straight in.

Exempt vs non-exempt: What does this mean?

The terms exempt and non-exempt refer to whether an employee is eligible for overtime pay. 

Under the federal Fair Labor Standards Act (FLSA), exempt employees are not entitled to overtime pay. Conversely, non-exempt employees must receive overtime pay if they work more than 40 hours in a week.

The difference hinges on two core requirements:

1. How much they’re paid (the salary test); and

2. what kind of work they do (the duties test).

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Exempt vs. non-exempt employees: what’s the difference, and why does it matter?

Discover the key differences between exempt and non-exempt employees, including legal implications and how it impacts payroll.

How do you determine if someone is exempt or non-exempt?

To classify someone as exempt under the FLSA, they must meet all three of the following criteria:

• The salary level test. To be classed as non-exempt, the employee must earn at least $684 per week (or $35,568 annually). However, it’s important to note that some states require more (we’ll cover this later in the article).

• The salary basis test. The employee must receive a fixed salary (i.e., not subject to change based on hours worked or the quality of work). In other words, there can be no hourly pay or deductions for partial days.

• The duties test. The employee’s primary job duties must fall under one of the FLSA's exempt categories, such as executive, administrative, or professional.

The duties test is where most companies struggle and where most misclassifications occur — so how do you get it right?

How does the duties test work?

The exempt duties test asks one critical question: what kind of work does your employee actually do? In other words, what are their day-to-day duties?

Based on the answer to this, here are the main FLSA-defined exemptions:

1. Executive exemption

Typically applies to: Team leads, department heads, and senior managers.

Duties must include:

• Managing the enterprise or a department/subdivision of it.

• Regularly directing the work of at least two full-time employees.

• Having the authority to hire or fire (or at least influence such decisions).

Example: A head of customer support managing a three-person team would likely qualify. However, a team lead with no direct reports probably would not.

2. Administrative exemption

Typically applies to: HR managers, operations leaders, and marketing strategists

Duties must include:

• Performing office or non-manual work related to general business operations.

• Using independent judgment and discretion on significant matters.

Example: An HR generalist who designs company policies may be exempt. A payroll clerk following set procedures likely isn’t.

3. Professional exemption

Typically applies to: Accountants, lawyers, engineers, designers, and some teachers.

Duties must include:

• Work requiring advanced knowledge in a field of science or learning.

• Work typically involving prolonged, specialized instruction.

Example: A fully qualified lawyer in a senior role will likely qualify. However, a junior paralegal likely does not.

4. IT employee exemption

Typically applies to: Programmers, systems analysts, and software engineers.

Duties must include:

• Designing, developing, testing, or modifying systems or programs.

Example: A software engineer with a degree and autonomy in building systems may be exempt. But someone in a basic IT support or helpdesk role likely won’t.

5. Outside sales exemption

Typically applies to: Field sales reps.

Duties must include:

• Making sales or obtaining orders outside the employer’s place of business.

• Regular work away from the office — not remote sales (such as through video calls).

Remember: Job titles don’t determine status. Always focus on the employee’s actual day-to-day responsibilities.

What about state laws?

As mentioned, some states set their own standards when determining the difference between exempt and non-exempt employees. If you have employees in these states, you must adhere to them — regardless of where you are headquartered.

In particular, certain states have raised the minimum federal threshold of $684 per week, or enacted stricter duties tests. Here’s a breakdown:

Note that the table above is a general guide; many of these states also:

• Define duties more narrowly than the FLSA.

• Require a greater percentage of time spent on exempt tasks (e.g., California’s 50% rule).

• Offer fewer exemptions, making it harder to qualify.

To see a full breakdown of the requirements in each state, check out our free US State Explorer tool.

How to stay compliant

To ensure that you are classifying your team members correctly and avoiding potential penalties, here are some best practices to follow:

• Write clear job descriptions. Align each employee’s job descriptions with their actual duties, not idealized roles. Be honest about what the person does daily.

• Conduct regular audits. This is especially important during organizational changes or growth phases. For instance, someone may have been exempt last year, but no longer “passes” the test.

• Train your managers. They’re often assigning duties, so make sure they understand the implications.

• Don’t assume that a worker with a high salary is automatically exempt. As mentioned, it’s not about the employee’s job title or salary — it’s about their day-to-day duties.

How can Remote help?

The exempt duties test isn’t just a compliance checkbox; it’s a fairness test. But to fully protect your business and keep your employees happy, you need to ensure that you are tracking your hourly employees’ hours accurately, and that you are paying them correctly — in line with local laws and regulations. You also need to keep accurate records in case of an audit.

Remote Payroll ensures that your employees are always paid correctly and on time, and that you are complying with local wage regulations and payroll tax laws. This saves you time and resources, and gives you peace of mind.

To learn more, speak to one of our friendly payroll experts today.

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