October 13, 2026
An exempt employee is one the law doesn’t require you to pay overtime. To be exempt, an employee generally has to be paid a fixed salary at or above a minimum level and do work that fits one of the recognized exemptions, such as executive, administrative, professional or computer work. Everyone else is non-exempt and must be paid at least minimum wage plus overtime for hours over 40 in a week.
Key takeaways
Under the federal Fair Labor Standards Act (FLSA), an employee is exempt only if three things are true. They’re paid on a salary basis, meaning a fixed amount each pay period that doesn’t drop when they work fewer hours. The salary is at or above the required level. And their actual duties fit one of the exemptions. Job titles don’t decide it. The work does.
The exemptions most relevant to startups are:
| Exemption | Duties test (summary) | Typical startup role |
|---|---|---|
| Executive | Primary duty is managing the company or a department; regularly directs at least two full-time employees; has real input on hiring and firing | Head of engineering with a team, VP of sales with reps |
| Administrative | Office work directly related to running the business, with discretion and independent judgment on significant matters | Head of finance, senior operations or HR lead |
| Learned professional | Work requiring advanced knowledge in a field of science or learning, usually gained through specialized education | In-house lawyer, scientist, licensed accountant |
| Creative professional | Work requiring invention, imagination or talent in a recognized artistic or creative field | Senior designer or writer doing original creative work |
| Computer employee | Systems analysis, programming or software engineering work; paid a salary of at least $684 a week or at least $27.63 an hour under federal law | Software engineer, data engineer |
| Outside sales | Primary duty is making sales away from the employer’s place of business; no salary test | Field sales rep who meets customers in person |
| Highly compensated | Total pay of at least $107,432 a year and regularly performs at least one exempt duty | Senior individual contributor |
Federal law sets the floor. Your state can be stricter on both salary and duties, and the stricter rule wins.
The federal threshold is $684 a week, or $35,568 a year. The Department of Labor raised it in 2024, but a federal court struck that rule down nationwide, and the Department withdrew it in May 2026. The $684 figure applies unless and until a new rule is adopted.
Several states set far higher minimums, and most adjust them every January:
| State | 2026 exempt salary minimum |
|---|---|
| California | $1,352 a week ($70,304 a year), twice the state minimum wage |
| New York (New York City, Long Island and Westchester) | $1,275 a week ($66,300 a year) |
| New York (rest of state) | $1,199.10 a week ($62,353.20 a year) |
| Washington | $1,541.70 a week ($80,168.40 a year) |
| Colorado | $1,111.23 a week ($57,784 a year) |
California also sets its own, much higher minimum for the computer professional exemption, adjusted each year. Other states have their own rules too, so check the state where each employee actually works, including remote employees.
Founders often call everyone “salaried” and assume that settles it. It doesn’t. These roles are often non-exempt at a startup, regardless of salary:
You can pay a non-exempt employee a salary, but you still have to track their hours and pay overtime. That includes after-hours Slack and email. From your first non-exempt hire, use a timekeeping tool and set a clear policy on working outside scheduled hours.
The employee can recover unpaid overtime, usually for two years back (three if the violation was willful) under federal law, and longer under some state laws. New York allows six years. On top of back pay, federal law generally adds an equal amount as liquidated damages, and the employer pays the employee’s attorney’s fees. State law can add penalties, such as California’s penalties for inaccurate wage statements.
The math adds up quickly. A support rep who regularly works 50-hour weeks for two years can be owed tens of thousands of dollars before fees. Claims also tend to come in groups, since one misclassified role usually means everyone in that role was misclassified.
Classify each role when you write the offer letter, not after. For every exempt hire, note which exemption applies, why the duties fit it, and how the salary compares to the threshold in the employee’s state. Revisit it when the job changes, at each raise cycle, and whenever you hire in a new state. If you’re close to a line, classifying the role as non-exempt is the safer choice.
For related reading, see What Should Founders Know About Startup Employment Law?, Independent Contractor vs Employee, Can Startup Workers Be Paid Only in Equity? and Startup Employment Contract Guide. If you’d like help classifying roles or drafting offer letters, contact us.
