FLSA Exemption Thresholds: A Practical Classification Audit

An employee can earn a salary, hold a manager title, and still qualify for overtime. For HR and payroll leaders, the defensible approach is to evaluate each exemption against its actual requirements—not assume that a pay method or job description settles the question. Start with the applicable salary threshold, then examine pay practices and the work employees really perform.

Start with the federal threshold—and verify it

Following the vacatur of the federal 2024 overtime rule, the federal Department of Labor returned to applying the 2019 rule's thresholds for the standard executive, administrative, and professional exemptions:

• Standard salary level: $684 per week, equivalent to $35,568 annually.
• Highly compensated employee threshold: $107,432 in total annual compensation, including at least $684 per week paid on a salary or fee basis.

The invalidated rule's higher thresholds should not be treated as operative federal requirements. Because litigation and rulemaking can change the landscape, verify current Department of Labor guidance when you conduct the audit and before changing pay or classifications.

These amounts are not universal exemption rules. Some exemptions, including certain teaching, legal, and medical roles, have different requirements. Outside sales employees have a separate exemption framework, and qualifying computer employees may meet a separate hourly-pay route. Confirm the specific exemption rather than applying one salary cutoff to every position.

State law matters independently. Some states impose higher salary thresholds, stricter duties tests, or different overtime obligations. Check your state's rules, including rules applicable to remote employees, and confirm overlapping requirements with counsel.

Test three separate questions

For the usual executive, administrative, and professional exemptions, organize the review around three tests.

1. Salary level: Does compensation meet the applicable threshold? Evaluate the required weekly amount rather than relying only on an annualized offer letter. Bonuses and incentive payments have specific treatment; do not assume every compensation component counts.

2. Salary basis: Is the employee generally paid a predetermined amount that is not reduced because of variations in the quality or quantity of work? Improper deductions can jeopardize an exemption. Review actual pay practices, including partial-day deductions and unpaid disciplinary suspensions, with qualified guidance.

3. Duties: Does the employee's primary duty satisfy the claimed exemption? Titles, seniority, and salary are not substitutes for this analysis.

A highly compensated employee classification still requires a duties review, although the federal test is streamlined. High compensation alone is not enough, and states may not recognize that federal approach.

Build an audit file that shows actual work

Create a review population of employees currently classified as exempt. Prioritize roles near applicable salary thresholds, recently reorganized teams, working supervisors, and positions whose responsibilities have shifted without an updated job description.

For each employee or genuinely comparable role group, collect:

• Work location and the exemption being claimed.
• Current salary, compensation components, and effective dates.
• Job description and organizational reporting relationships.
• Examples of recurring work and decision-making authority.
• Manager and employee input about actual responsibilities.
• Relevant pay deductions and prior classification decisions.

Use role groups to organize the work, not to bypass individual differences. Two employees with the same title may have materially different authority or responsibilities. Record the evidence, reviewer, review date, and unresolved questions in each audit file.

Probe the duties that create classification risk

For an executive exemption, examine whether management is the primary duty, whether the employee customarily directs at least two full-time employees or their equivalent, and whether hiring or firing authority—or recommendations given particular weight—supports the exemption. A shift-lead title does not establish these facts.

For an administrative exemption, focus on office or nonmanual work related to management or general business operations and discretion and independent judgment on matters of significance. Following detailed procedures or handling important transactions does not, by itself, establish this exemption.

For a learned professional exemption, examine whether the work requires advanced knowledge in a field of science or learning customarily acquired through prolonged specialized intellectual instruction. Having a degree does not automatically make the job exempt.

Ask managers for concrete examples: What decisions can this person make without approval? What recommendations influence staffing decisions? What work occupies the role during an ordinary week? Time spent is relevant, but the federal primary-duty analysis is not simply a percentage calculation.

Turn findings into a controlled correction plan

Use this checklist to close the audit:

1. Assign a disposition. Document whether the evidence supports the exemption, requires more investigation, or indicates reclassification.
2. Escalate uncertainty. Have counsel review questionable duties, salary deductions, state-law differences, and potential historical exposure.
3. Choose prospective changes. Raising salary addresses only a salary-level shortfall; it cannot fix a failed duties test. Do not rewrite a description unless the actual work changes.
4. Prepare time tracking. For newly nonexempt employees, explain how to record all working time, including remote work, after-hours messages, and applicable travel or training time.
5. Coordinate payroll setup. Confirm workweek boundaries, regular-rate treatment, and overtime handling with your payroll processor. Salaried nonexempt status is possible, but calculations need careful review.
6. Communicate and follow up. Explain the change without presenting nonexempt status as a demotion. Recheck the arrangement after implementation and when duties, pay, or work location changes.

An overtime-approval policy does not eliminate the obligation to pay for compensable overtime worked. Address unauthorized work through management practices, not omitted time.

How HarmonyWFM helps

An FLSA overtime classification audit needs reliable employee information and a workable transition when classifications change. HarmonyWFM's employee records help centralize the information HR reviews, while configurable time rules support tracking hours under the organization's reviewed policies.

Reporting helps teams examine recorded hours after reclassification and identify entries needing review. HarmonyWFM supports reviewing time and exporting it to a payroll processor; it does not process payroll or calculate net pay. Legal exemption decisions still require a documented analysis. Explore the HarmonyWFM platform.