What Is a Salaried Non-Exempt Employee?
A salaried non-exempt employee receives a fixed salary each pay period but still earns overtime pay when working more than 40 hours in a workweek. This creates a hybrid compensation structure: the predictability of a salary with the overtime protections of an hourly worker.
This classification surprises many employers because of a pervasive misconception: that salary automatically means exempt from overtime. It doesn't. Being paid a salary is just one part of the exemption test—employees must also meet specific duties requirements. If an employee fails the duties test, they remain non-exempt regardless of how they're paid.
For more on the differences between exempt and non-exempt employees generally, see our FLSA non-exempt article.
Quick Comparison
Why Use This Classification?
Employers choose salaried non-exempt status for specific strategic reasons:
Compliance Protection: When a position doesn't meet exemption criteria but you want salary structure, this classification avoids misclassification risk while maintaining professional positioning.
Predictable Budgeting: A fixed salary makes budgeting easier during standard weeks while still complying with overtime requirements during busy periods.
Transition Roles: This works well for employees being groomed for exempt positions—they receive the salary structure they'll eventually have permanently while still protected by overtime rules.
Professional Perception: Some employers prefer the "salaried" designation for certain roles, even when duties don't qualify for exemption.
The Critical Piece: Overtime Calculation
This is where salaried non-exempt gets complicated. Unlike hourly employees where overtime is straightforward (hourly rate Ă— 1.5), calculating overtime for salaried non-exempt requires determining the "regular rate" first.
The method depends on the agreement between employer and employee about how many hours the salary covers.
Method 1: Fixed Workweek Agreement (Most Common)
The employer and employee agree upfront that the salary covers a specific number of hours per week. That number becomes the divisor for calculating the regular rate.
Example:
- Weekly salary: $800
- Agreed hours: 40
- Regular hourly rate: $800 Ă· 40 = $20/hour
- Overtime rate: $20 Ă— 1.5 = $30/hour
If the employee works 45 hours:
- Regular salary: $800 (covers first 40 hours)
- Overtime: 5 hours Ă— $30 = $150
- Total weekly pay: $950
This method is clearest for employees and most common in practice.
Method 2: Fluctuating Workweek (Less Common)
Some employers set the salary to cover all hours actually worked, meaning the regular rate changes each week based on hours worked.
Example:
- Weekly salary: $800
- Hours worked: 45
- Regular rate: $800 Ă· 45 = $17.78/hour
- Half-time overtime: $17.78 Ă· 2 = $8.89/hour (since salary already paid 1Ă— for all hours)
- Overtime premium: 5 hours Ă— $8.89 = $44.45
- Total weekly pay: $844.45
Why the half-time rate? The salary already compensated the employee for all 45 hours at the regular rate. You only owe the additional "half" of time-and-a-half for overtime hours.
This method results in lower overtime costs but can confuse employees and requires careful documentation.
Calculation Method Comparison
State-Specific Rules
California employers: You must divide the weekly salary by a maximum of 40 hours when calculating the regular rate, regardless of any agreement about hours covered. California doesn't allow the fluctuating workweek method.
Always check your state's Department of Labor for specific requirements.
Documentation Requirements
Whatever calculation method you choose, document it in writing:
- How many hours the salary covers (if using fixed workweek)
- Which calculation method will be used
- How the regular rate will be determined
- When overtime rates apply
Include this information in:
- The offer letter
- The employee handbook
- An acknowledgment form the employee signs
Clear documentation prevents disputes and ensures consistent application across all similarly situated employees.
Time Tracking Is Still Required
The biggest misconception employers have: assuming that salaried employees don't need to track time. Wrong.
Salaried non-exempt employees must track all hours worked, just like hourly non-exempt employees. The FLSA requires accurate records of:
- Daily hours worked
- Start and stop times
- Meal break times
- Total hours per workweek
- Overtime hours worked
Without accurate time tracking, you cannot calculate overtime correctly. This creates significant compliance risk and potential wage claims.
Workforce management tools like Breakroom can help manage time tracking for all employee types, including salaried non-exempt workers.
Common Mistakes to Avoid
Mistake #1: Treating Salary as Exempt Status The most frequent error is assuming salary equals no overtime. It doesn't. Non-exempt employees earn overtime regardless of pay structure.
Mistake #2: Skipping Time Tracking All non-exempt employees must track hours.
Mistake #3: Using Wrong Calculation Method Mixing up the two methods or not documenting which applies creates payroll errors and potential violations.
Mistake #4: Improper Salary Deductions The rules for docking pay differ between exempt and non-exempt employees. Don't assume exempt deduction rules apply to salaried non-exempt workers.
When This Classification Makes Sense
Salaried non-exempt status works well for:
- Administrative support roles that don't meet the administrative exemption test but benefit from salary structure
- Technical positions requiring specialized knowledge but not meeting professional exemption criteria
- Supervisory roles where the employee has a supervisor title but doesn't truly direct other employees' work
- Positions with predictable schedules that consistently work around 40 hours with occasional overtime
- Professional development tracks where employees are learning exempt-level duties but not yet performing them primarily
Communication Is Critical
Salaried non-exempt status confuses employees who expect salary to mean exempt. Address this directly:
In the Offer Letter: "This position is classified as non-exempt under the FLSA and is eligible for overtime pay at 1.5 times your regular rate. You will be paid a weekly salary of $800, which covers 40 hours per week. You must track all hours worked."
During Onboarding: Explain explicitly that:
- The position is salaried
- It's still eligible for overtime
- Time tracking is required
- How overtime will be calculated
In Your Handbook: Include a section explaining salaried non-exempt classification, overtime calculation methods, and time tracking requirements.
Best Practices
- Choose One Method: Select either fixed workweek or fluctuating workweek and apply it consistently to all similarly situated employees
- Document Everything: Put the classification, calculation method, and hours covered in writing
- Train Managers: Ensure supervisors understand that salary ≠exempt and know how to track hours and calculate overtime
- Audit Annually: Review whether duties still don't qualify for exemption and whether the salary meets minimum wage requirements for all hours worked
- Set Clear Overtime Policies: Establish when overtime is allowed, who must approve it, and how it will be managed
When to Reconsider This Classification
If you find yourself constantly explaining the structure or dealing with confusion, consider:
- Converting to hourly non-exempt: Simpler calculation, clearer for employees
- Restructuring duties to qualify for exemption: If the role could meet exempt criteria with some changes (but only if genuinely appropriate)
- Using a salary guarantee with hourly pay: Pay hourly but guarantee a minimum weekly amount
The Bottom Line
Salaried non-exempt employees occupy a middle ground: they receive salary structure while retaining overtime protections. This classification works when you want the professional positioning and predictability of a salary but the position doesn't meet exemption criteria.
The key to success is threefold:
- Calculate overtime correctly using one of the approved methods
- Track all hours worked despite the salary structure
- Communicate clearly so employees understand they're not exempt
Done right, salaried non-exempt classification provides compliance protection and flexibility. Done wrong, it creates confusion, payroll errors, and FLSA violations.
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