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“But They’re Salaried!”—Why a Salaried Employee Might Still Earn Overtime Pay
“But they’re salaried!” It is one of the most common misconceptions in employment law: that paying an employee a salary eliminates any obligation to pay overtime. That assumption is incorrect, and it has proven costly for employers across the country, including right here in Michigan.
Under both federal and Michigan law, paying an employee a salary does not automatically exempt them from being paid overtime compensation when they work extra hours. Whether an employee is entitled to overtime depends on their specific job duties and how much they are paid, not simply on the fact that they receive set wage payments in the form of a salary.
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Common Myth
If I pay my employees a set salary, I do not owe them overtime compensation, regardless of how many hours they work. |
The Law
Salary alone does not create an exemption. An employee must meet both a salary threshold and a specific duties test to be overtime exempt. |
What the Law Actually Requires
The federal Fair Labor Standards Act (FLSA) requires that most employees who work more than 40 hours in a workweek be paid overtime compensation at a rate of at least one and one-half times their regular pay. Michigan’s Improved Workforce Opportunity Wage Act (IWOWA) imposes the same requirement for Michigan employees.1
But Aren’t There Exemptions? Yes!
There are certain categories of employees who are exempt from the overtime pay requirement. However, these exemptions are narrowly defined, and the burden falls on the employer to demonstrate that an employee actually qualifies. Simply paying someone a salary, giving them a managerial title, or assuming their role “sounds” exempt is not enough.
The most commonly claimed exemptions are described below, but it is important to remember that the analysis is fact-specific and depends heavily on what the employee actually does, not how the position is described on paper.
The white collar exemptions (executive, administrative, and professional) – These are the exemptions most commonly at issue in misclassification cases. To qualify for any of these, an employee must satisfy two independent requirements:
Two-part Test: Both Requirements Must Be Met
Part 1
Salary Test
The employee must be paid at least $684 per week ($35,568 annually) on a salary basis, which is the current threshold enforced under the 2019 DOL rule.[2]
Part 2
Duties Test
The employee’s primary job duties must qualify under one of the recognized exemption categories: executive, administrative, or professional.
An employee who is paid by salary and earns more than the salary threshold, but whose daily duties do not meet the relevant duties test is still entitled to overtime pay. Conversely, an employee who does the right type of work but is paid hourly (or by some other non-salary means) or earns less than $684 per week is also still entitled to overtime pay.3
Important
Job titles do not determine exempt status. An employee called a “manager” or “director” is not automatically exempt. What matters is what that person actually does day-to-day, not what they are called.[4]
The duties test for each white-collar category requires a careful, fact-specific analysis of the employee’s actual day-to-day responsibilities. The three categories, and what each genuinely requires, are outlined below:
White-Collar Exemptions
Executive
True Management Role
Primary duty must be managing the company or a recognized department. The employee must regularly direct the work of 2 or more other employees and have genuine authority or significant input on hiring, firing, or advancement decisions. An employee who supervises others only occasionally, or whose primary work is the same as those they nominally supervise, will likely not qualify.
Administrative
High-level Office or Business Operations Work
Primary duty must be office or non-manual work directly related to the management or general business operations of the employer. Critically, the employee must exercise real discretion and independent judgment on matters of significance. Employees who primarily follow established procedures or refer decisions to others generally do not qualify. Examples may include in-house accounting, human resources, or office manager roles depending on specific duties.
Professional
Advanced or Specialized Knowledge
Work must require advanced knowledge in a field of science or learning, such as law, medicine, accounting, or engineering, customarily acquired through a prolonged course of specialized education, or invention and creative talent in a recognized artistic field. Most roles that do not require a degree or its equivalent will not satisfy this test.
Note: Blue-Collar Workers
These Exemptions Never Apply
Manual laborers, including carpenters, electricians, mechanics, and construction workers, are never exempt under these categories, regardless of pay level or job title.[5]
Other Exemptions Employers Should Be Aware Of:
Beyond the white-collar exemptions, the FLSA recognizes several other categories. These come up less frequently in misclassification disputes, but employers in certain industries should be aware of them:
Computer Professionals
Systems analysts, programmers, software engineers, and similarly skilled workers may be exempt if their primary duty involves applying systems analysis techniques, designing or modifying computer systems or programs, or related high-level technical work. They must earn at least $684 per week on a salary basis or at least $27.63 per hour. General IT support or help desk roles typically do not qualify.
Outside Sales
Employees whose primary duty is making sales or obtaining orders or contracts, and who customarily and regularly perform that work away from the employer’s place of business, may be exempt. There is no salary requirement for this exemption. Inside sales employees do not qualify.
Highly Compensated Employees
Employees earning total annual compensation of at least $107,432 (including at least $684 per week on a salary or fee basis) may be exempt if they customarily and regularly perform at least one of the duties of an exempt executive, administrative, or professional employee.
Commissioned Inside Sales
Employees of retail or service establishments may be exempt if their regular rate of pay exceeds one and one-half times the applicable minimum wage and more than half of their compensation for a representative period consists of commissions on goods or services.
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The key: Every exemption requires a careful, individualized review of the employee’s actual compensation and job duties. An exemption is not something an employer simply declares. It must be supported by the facts.
What Happens When Employers Get It Wrong
Misclassifying a non-exempt employee as overtime exempt is not just a paperwork problem. The consequences can be significant:
- Back wages owed for up to two years of unpaid overtime (three years if the violation is found to be willful)
- Civil money penalties assessed by the U.S. Department of Labor for willful violations (currently up to $2,515 per violation for repeated or willful violations)[6]
- Attorneys’ fees and costs if an employee brings a private lawsuit
- Under Michigan law, additional civil fines of $1,000 or more per violation[7]
What Back Wages Can Look Like: A Simple Example
Consider an employee earning a salary of $45,000 per year who is misclassified as exempt but regularly works 45 hours per week. Under the FLSA, the regular rate of pay for that employee is approximately $21.63 per hour. For each of those 5 overtime hours per week, the employer owes an additional half-time premium of roughly $10.82 per hour.
Over a two-year period (104 weeks), that adds up to approximately $5,625 in unpaid overtime wages for a single employee. Multiply that across several similarly situated employees, and the exposure grows quickly.
Note: This example assumes the employee was paid straight-time for overtime hours worked but received no overtime premium. Actual back wages will depend on the specific facts of each situation.
Policy Update
Recent Development: Liquidated Damages in Administrative Proceedings
Effective June 27, 2025, the DOL’s Wage and Hour Division issued Field Assistance Bulletin No. 2025-3, which prohibits WHD investigators from seeking liquidated (double) damages when resolving wage violations through administrative proceedings (meaning before any lawsuit is filed).
Under prior policy, employers settling with WHD at the investigation stage could face back wages plus an equal amount in liquidated damages. Under the new policy, administrative settlements are limited to unpaid wages only.
Important caveat: The DOL has expressly preserved its right to seek liquidated damages if the matter proceeds to court. This policy change also does not affect employees’ right to seek double damages through a private lawsuit.
Enforcement Example
Recent Enforcement: Michigan
In late 2024, a federal court ordered a Detroit-area security company and its HR director to pay $47,438 in back wages and liquidated damages to 33 employees, plus an additional $20,625 in civil money penalties for willful violations, after investigators found guards were misclassified as overtime-exempt. The company had already been cited for the same violations in 2019. The DOL’s Wage and Hour District Director in Detroit stated: “There are specific salary and duty tests that must be met for an employee to be exempt from overtime.”[8]
Questions to Ask About Your Own Workforce
If any of the following situations apply in your organization, it may be time for a closer review:
- Employees are classified as exempt based primarily on their title or the fact that they receive a salary, rather than based on a review of their actual duties
- Employees classified as exempt earn close to the $684 per week threshold
- Managers or supervisors spend the majority of their time doing the same work as the employees they oversee
- Classifications have not been reviewed after employees’ roles changed or expanded
- Your workforce includes roles that sound like management but involve minimal discretion or real supervisory authority
When Is a Good Time to Review Your Employment Classifications? Now!
A proactive audit of exempt employee classifications is one of the most effective ways to limit wage and hour liability. If you have questions about whether your pay practices comply with the FLSA or Michigan law, FSBR’s employment law experts are available to help.
This article is for general informational purposes only and does not constitute legal advice. Contact our office to discuss your specific situation.
Citations
1 29 U.S.C. § 207(a) (FLSA); MCL § 408.934a(1) (IWOWA).
2 29 C.F.R. § 541.600(a). Note: The DOL issued a 2024 final rule raising the threshold, but on November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated it. The Department is currently enforcing the 2019 rule’s minimum of $684/week. Litigation remains pending.
3 DOL Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the FLSA (rev. Sept. 2019).
4 Id.; DOL Fact Sheet #17G: Salary Basis Requirement and the Part 541 Exemptions Under the FLSA.
5 DOL Fact Sheet #17A.
6 Field Assistance Bulletin No. 2025-3 (June 27, 2025); 29 U.S.C. §§ 216(b), 216(c), 260. Civil money penalty maximum per DOL current schedule.
7 MCL § 408.939; WHD 9904 (rev. 2/2025).
8 U.S. Dep’t of Labor v. Detroit Body Guards Protection Unit LLC, Carla Bland, Civil Action No. 2:23-cv-13175 (E.D. Mich.) (consent judgment entered Nov. 26, 2024).
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