Disclaimer: This article is provided for informational and knowledge purposes only and does not constitute legal advice. Please consult with a qualified payroll company or employment lawyer to validate this information for your specific situation.
Understanding Exempt vs. Non-Exempt
Under the Fair Labor Standards Act (FLSA), not all salaried employees are treated the same.
Exempt employees receive a fixed salary regardless of hours worked and are NOT entitled to overtime pay. To qualify as exempt, an employee must meet ALL three tests:
Salary Basis: Paid a predetermined, fixed amount each pay period
Salary Level: Earn at least $684/week ($35,568/year) per DOL regulations
Duties Test: Perform executive, administrative, professional, computer, or outside sales duties as their primary job function per DOL Fact Sheet #17A
Non-exempt employees MUST receive overtime pay for hours worked beyond 40 per week—even if they're paid a salary. If an employee fails any of the three tests above, they are non-exempt.
Important: Being "salaried" does not automatically mean exempt from overtime.
Calculating the Hourly Rate
For both classification types, determine the hourly equivalent of the annual salary.
Formula:
Hourly Rate = Annual Salary ÷ 2,080
The 2,080 figure represents standard full-time hours: 40 hours/week × 52 weeks/year. Reference: DOL Fact Sheet #17G
How to Pay Exempt Employees
Exempt employees receive the same fixed pay each period, regardless of hours worked.
Formula:
Pay Period Amount = Annual Salary ÷ Number of Pay Periods
Weekly: Annual Salary ÷ 52
Biweekly: Annual Salary ÷ 26
Semi-monthly: Annual Salary ÷ 24
Monthly: Annual Salary ÷ 12
Key rules:
Do not dock pay for partial-day absences
Do not reduce pay based on hours worked
Pay remains constant each period
How to Pay Non-Exempt Salaried Employees
Non-exempt salaried employees receive their base salary plus overtime for any hours exceeding 40 per week.
Formulas:
Hourly Rate = Annual Salary ÷ 2,080
Weekly Base Salary = Annual Salary ÷ 52
Overtime Pay = (Hours Over 40) × Hourly Rate × 1.5
Total Weekly Pay = Weekly Base Salary + Overtime Pay
Key requirements:
Track all hours worked
Pay overtime at 1.5× the hourly rate for hours over 40/week
Maintain records for at least 3 years
Reference: DOL Overtime Pay Requirements
Key Takeaways
✓ Determine exempt or non-exempt status FIRST
✓ Calculate hourly rate using Annual Salary ÷ 2,080
✓ Exempt employees get same pay regardless of hours
✓ Non-exempt salaried employees get base salary + overtime for 40+ hours
✓ Always track hours for non-exempt employees