Do Managers Have to Be Salaried? (w/Examples) + FAQs

No. Managers do not have to be salaried employees under federal law. The Fair Labor Standards Act does not require employers to classify managers as exempt salaried workers, even when those managers meet all the criteria for exemption. Employers have full discretion to pay managers on an hourly basis and provide overtime compensation for hours worked beyond 40 per week.

The confusion stems from Section 13(a)(1) of the FLSA, which creates an exemption from minimum wage and overtime requirements for certain executive employees. This exemption allows employers to pay qualifying managers a salary without overtime, but the FLSA prohibits misclassifying non-exempt employees as exempt. The law does not prohibit treating exempt-eligible employees as non-exempt. According to a recent DOL opinion letter, non-exempt classification is the default status, and employers may choose not to apply exemptions as a matter of lawful business judgment.

In the retail and service industries, manager misclassification has led to over $100 million in settlements in recent years. Burlington Coat Factory paid $20 million, TJ Maxx and related companies paid $31.5 million, and JPMorgan Chase settled for $8.3 million, all for misclassifying assistant managers as exempt when they performed primarily non-managerial duties.

What You Will Learn:

📋 The exact salary and duties tests that determine whether a manager can legally be classified as exempt from overtime under federal and state law

💰 Real dollar amounts and thresholds for 2026, including the federal minimum of $35,568 annually and state requirements reaching $80,168 in Washington

⚖️ The three-part executive exemption test that managers must pass, including managing two or more employees and having hiring or firing authority

🚫 Common misclassification mistakes that have cost employers millions in back pay, liquidated damages, and attorney fees

✅ Practical scenarios comparing hourly and salaried managers with specific examples from retail, restaurant, and office environments

Understanding the Fair Labor Standards Act and Manager Classification

The Fair Labor Standards Act establishes baseline protections for American workers. Enacted in 1938, this federal law requires employers to pay at least minimum wage for all hours worked and overtime premium of one-and-a-half times the regular rate for hours exceeding 40 in a workweek. These protections apply to most employees, regardless of job title or perceived status.

The FLSA creates specific exemptions for certain categories of workers. The executive exemption is designed for true managers who spend the majority of their time performing managerial functions rather than the same tasks as the employees they supervise. This exemption exists because lawmakers recognized that certain high-level employees exercise discretion and control over business operations in ways that make hourly tracking impractical.

The Department of Labor, through its Wage and Hour Division, administers and enforces the FLSA. The DOL publishes regulations at 29 CFR Part 541 that provide detailed guidance on exemption criteria. These regulations carry the force of law and courts defer to them when resolving disputes about employee classification.

State labor departments also play a critical role. Many states have enacted their own wage and hour laws with protections that exceed federal minimums. When federal and state laws conflict, employers must follow whichever standard provides greater protection to the employee. California, New York, and Washington maintain particularly robust worker protections.

The Three-Part Test for Executive Exemption

To classify a manager as exempt from overtime, employers must satisfy three separate requirements. Each element is mandatory, and failure to meet even one component means the employee remains entitled to overtime pay regardless of job title or responsibilities.

Salary Basis Requirement

The employee must receive compensation on a salary basis as defined by DOL regulations. Salary basis means the employee receives a predetermined amount each pay period that does not fluctuate based on the quality or quantity of work performed. This fixed compensation must be at least $684 per week, or $35,568 annually, under current federal law.

The salary must remain consistent even during weeks when the employee works fewer hours due to lack of available work. Employers cannot make deductions from an exempt employee’s salary for partial day absences, though deductions are permitted for full-day absences for personal reasons or under a bona fide sick leave plan. Improper salary deductions can destroy the exemption and convert the employee to non-exempt status.

State thresholds often exceed the federal minimum. California requires $70,304 annually for most exempt positions as of January 2026. New York mandates $66,300 per year in New York City and surrounding counties, with $62,353 required in the remainder of the state. Washington State sets the highest bar at approximately $80,168 annually, calculated as 2.25 times the state minimum wage.

The salary basis test contains specific exemptions. Computer professionals paid at least $27.63 per hour can qualify as exempt even without a salary. Licensed physicians and surgeons have separate thresholds. Business owners with at least 20 percent equity interest are not subject to salary requirements at all.

Primary Duty Test

The employee’s primary duty must be management of the enterprise or a customarily recognized department or subdivision. Primary duty means the principal, main, major, or most important duty the employee performs. Determining primary duty requires consideration of all facts, including the relative importance of exempt versus non-exempt duties, the amount of time spent on each type of work, and the employee’s relative freedom from direct supervision.

Management includes activities such as interviewing, selecting, and training employees. It encompasses setting and adjusting employee pay rates and work schedules. Directing the work of employees and evaluating their productivity and efficiency for purposes of recommending promotions or other status changes constitutes management. Handling employee grievances, disciplining employees, planning work assignments, determining techniques to be used, apportioning work among staff, and controlling the flow of materials or merchandise all qualify as managerial activities.

Many employees with manager titles do not satisfy this test. A retail assistant manager who spends 60 percent of the workday operating cash registers, stocking shelves, and assisting customers while spending only 40 percent directing other employees fails the primary duty test. The non-managerial work predominates, making the employee non-exempt regardless of title.

Courts examine actual job duties, not job descriptions or employment contracts. In Heyen v. Safeway, a California appellate court ruled that an assistant manager who regularly spent more than 50 percent of work time bagging groceries, cashiering, and stocking shelves was entitled to overtime. The court rejected Safeway’s argument that these tasks were managerial because they allowed the manager to observe store operations.

Context matters in analyzing duties. A restaurant manager who works alongside servers during a dinner rush to prevent delays may be performing exempt work if the purpose is training, demonstration, or resolving operational problems. The same manager who regularly works as a server to save labor costs is performing non-exempt work, and that time counts against the primary duty requirement.

Supervision and Authority Requirements

The employee must customarily and regularly direct the work of at least two or more full-time employees or their equivalent. Two full-time employees means 80 hours of combined work per week. One full-time employee and two half-time employees satisfy this requirement. Four part-time employees working 20 hours each also meet the threshold.

Customarily and regularly means more than occasionally but less than constantly. The employee need not supervise the same two employees at all times, and supervision of different employees on different shifts can satisfy the requirement. If a business has five full-time employees, two managers can both be exempt as long as each regularly directs at least two of those workers.

The employee must also possess genuine authority to hire or fire other employees, or the employee’s recommendations regarding hiring, firing, advancement, promotion, or other status changes must be given particular weight. Particular weight means the employee’s recommendations are seriously considered and frequently followed, even if not always accepted.

Simply conducting interviews does not establish hiring authority. The employee must have real input into hiring decisions that affects outcomes. Making a recommendation that management routinely ignores does not satisfy the test. Having the power to suspend employees, assign shifts, approve time off requests, or document performance issues provides strong evidence of the required authority.

A department store merchandise manager with theoretical authority to discipline employees but who must obtain approval from corporate management before taking any action lacks the independent authority required for exemption. The authority must be exercisable in practice, not merely theoretical on an organizational chart.

Special Exemption for Business Owners

The FLSA provides a simplified exemption for business owners that bypasses the normal requirements. An employee who owns at least a bona fide 20 percent equity interest in the enterprise and is actively engaged in its management qualifies as an exempt executive without regard to salary level or other criteria.

This exemption applies regardless of business structure. Corporate shareholders, limited liability company members, and partnership interests all qualify if they meet the 20 percent threshold. The ownership interest must be genuine, not merely a nominal stake created to avoid wage and hour obligations.

Active engagement in management means the owner-employee must actually participate in running the business. Simply holding equity while performing non-managerial work does not satisfy the requirement. An owner who works primarily as a salesperson, technician, or laborer and has minimal involvement in business decisions cannot claim this exemption.

The 20 percent rule creates planning opportunities for small businesses. A restaurant owner who personally manages operations can bring in a key employee as a minority partner, granting them exactly 20 percent equity and making them exempt without salary requirements. This approach works only if the employee genuinely manages the business, not if the ownership transfer is a sham to avoid paying overtime.

Some states impose additional requirements beyond federal law. Under Minnesota law, a 20 percent owner must also receive at least $155 per week in salary, manage and supervise at least two full-time employees, have authority over hiring and firing, and regularly exercise discretionary powers. California does not recognize the 20 percent exemption for purposes of state overtime law, meaning owners must meet the full executive exemption tests under state regulations.

Employers Can Choose to Pay Managers Hourly

Federal law does not mandate that eligible managers be classified as exempt. Employers retain complete discretion to treat any employee as non-exempt, even when that employee meets all criteria for exemption. A company could maintain an entire workforce of non-exempt employees, including the CEO, if it chose to track hours and pay overtime.

This flexibility serves important purposes. Some employers prefer the administrative simplicity of tracking hours for all employees uniformly. Others use non-exempt manager positions as development roles, allowing employees to gain supervisory experience while maintaining overtime eligibility. Budget constraints may make hourly management positions more sustainable for small businesses than salaried roles.

Employee morale considerations sometimes favor non-exempt classification. Workers promoted to management positions often resent losing overtime pay, particularly when the promotion comes with increased hours but minimal salary increase. Keeping managers non-exempt preserves their earning potential during busy periods and avoids the perception that promotion means working more for less money.

The decision carries practical implications. Non-exempt managers require accurate time tracking and overtime calculation. Employers must maintain records of all hours worked and ensure timely payment at the correct rates. Exempt managers require less administrative tracking but create risks if misclassified.

Reclassification from exempt to non-exempt requires careful handling. Employers should communicate the change positively, emphasizing overtime eligibility as a benefit rather than presenting reclassification as a demotion. Managers should receive training on time tracking requirements, and payroll systems need updating to accommodate the classification change.

Comparing Salaried and Hourly Manager Structures

Salaried Exempt Managers

Exempt classification works best when managers exercise genuine autonomy over their schedules and responsibilities. A regional sales manager who travels independently, sets appointments, manages client relationships, and rarely works more than 45 hours weekly benefits from salary status. The manager appreciates income predictability and schedule control.

The structure fails when employers exploit the exemption. Retail stores that schedule exempt managers for 60-hour weeks while paying the minimum salary of $35,568 annually effectively pay $11.40 per hour for regular hours and zero for overtime hours. This approach creates resentment, high turnover, and legal liability.

Hourly Non-Exempt Managers

Non-exempt classification protects managers from exploitation. A restaurant assistant manager working 55 hours weekly at $20 per hour earns $1,150 for 55 hours as a non-exempt employee versus $700 for a salary equal to $700 weekly. The hourly structure ensures the manager receives $800 for regular hours plus $450 for overtime, fairly compensating the extra hours.

Some industries favor hourly management. Hospitality businesses with seasonal demand benefit from reducing manager hours during slow periods. Construction companies with project-based workflows can scale management labor to match project requirements. Healthcare facilities that need supervisory coverage across multiple shifts use hourly managers to ensure fair payment for all hours worked.

Most Common Manager Classification Scenarios

Scenario 1: Retail Store Manager Working Alone

Retail managers who work alone during opening or closing hours perform non-exempt duties during those times. They are not managing or directing employees. The manager in this scenario might qualify as exempt if the 9 AM to 5 PM period involves substantial supervision, planning, and decision-making. If the manager primarily works alongside sales associates performing the same customer service tasks, the position is non-exempt.

Courts have consistently ruled that managers who work alone cannot be exercising their primary duty of management during those hours. A Dollar General store manager who opened and closed alone five days per week could not be exempt during those hours, even if classified as exempt overall. The time spent working alone as the only employee present counts as non-exempt time.

Scenario 2: Restaurant Assistant Manager

The restaurant assistant manager in this scenario likely fails the primary duty test. While some genuinely managerial work occurs, the majority of the shift involves performing the same tasks as servers and kitchen staff. The manager is not primarily managing; the manager is primarily working as a line cook and food runner who occasionally performs supervisory tasks.

Employers often misclassify these positions because profit margins are thin in food service and labor represents the largest controllable expense. Treating assistant managers as exempt saves substantial overtime costs, but creates massive liability when employees eventually file wage claims. A single misclassified manager working 55 hours weekly for two years accumulates over $31,000 in unpaid overtime at $15 per hour.

Scenario 3: Office Manager with Administrative Authority

This position might qualify as exempt under either the executive or administrative exemption. The office manager supervises employees and exercises independent judgment on matters affecting company operations. The position involves office work directly related to management and general business operations, satisfying administrative exemption criteria.

Critical factors include the level of discretion exercised and the significance of decisions made. An office manager who must obtain approval for all decisions above $500 and whose vendor negotiations are subject to review and revision lacks the independence required for exemption. The same title with authority to commit the company on substantial matters and implement policy changes likely qualifies as exempt.

Common Mistakes Employers Make

Misclassification Based on Job Title Alone

Employers cannot create exempt status by assigning a manager title to an employee who performs non-exempt work. Calling someone Assistant Manager, Supervisor, Lead, or Coordinator has no legal significance. The DOL and courts examine actual job duties, not titles or job descriptions.

The negative outcome of title-based classification is expensive. When an employee files a wage claim, the employer bears the burden of proving exemption. Job titles and descriptions are not evidence. The employer must present time records, witness testimony, and documentation of the employee’s actual daily activities. Most employers lack such evidence because they assumed the title was sufficient.

Paying a Salary and Assuming Exemption

Many employers believe that paying a salary automatically creates exempt status. This is false. Non-exempt employees can be paid on a salary basis as long as they receive overtime for hours over 40 per week. The salary basis test is only one of three requirements for exemption.

This mistake costs employers double. They pay the fixed salary and then owe overtime calculated by dividing the weekly salary by all hours worked to determine the regular rate, then paying an additional half-time premium for overtime hours. An employee paid $800 weekly salary who works 50 hours has a regular rate of $16 per hour and is owed $8 per hour for 10 overtime hours, totaling $880 total for the week.

Ignoring the Primary Duty Analysis

Employers frequently misclassify managers who spend most of their time on non-exempt tasks. The employee might have some supervisory responsibilities, but if the primary duty is not management, the exemption fails. Primary means more than 50 percent in most cases, though some courts use a more flexible standard.

The negative outcome compounds over time. Unpaid overtime accumulates for every week the employee works over 40 hours. Claims can reach back three years under the FLSA’s statute of limitations, or two years for non-willful violations. With liquidated damages equal to the unpaid wages, a three-year misclassification can result in six years worth of wages owed.

Failing to Meet State Salary Thresholds

Employers in states with higher minimums often pay federal-compliant salaries that fall below state requirements. A manager earning $40,000 annually satisfies federal law but not California’s $70,304 threshold or Washington’s $80,168 requirement. The employee is non-exempt under state law and entitled to overtime.

This mistake creates compliance nightmares for multi-state employers. A company with locations in Texas and California cannot use a uniform $36,000 salary for managers across all stores. Texas managers at that salary may be exempt if duties qualify, while California managers at the same salary are automatically non-exempt regardless of duties.

Not Accounting for State Duties Tests

Some states impose duties requirements stricter than federal law. California requires that exempt employees spend more than 50 percent of their time on exempt duties and that those duties be consistent with the exemption category. The exercise of independent judgment must be real, not theoretical.

The negative outcome is particularly severe in states like California that allow recovery of penalties and attorney fees. California provides for penalties of up to $25,000 per willful violation, converting what might be a $50,000 wage claim into a $200,000 judgment with penalties and fees.

Inadequate Documentation of Manager Duties

Employers rarely maintain detailed records of exempt employee activities. When classification disputes arise, the employer cannot prove what the manager actually did each day. The employee testifies about spending 70 percent of time on non-exempt tasks, and the employer has no evidence to refute it.

The negative outcome is loss of the case. Courts require employers to prove exemptions. Without documentation showing the employee primarily performed exempt work, exercised significant authority, and regularly supervised multiple employees, the employer loses and owes back wages plus penalties.

Penalties for Manager Misclassification

Federal penalties under the FLSA include back wages for all unpaid overtime, typically calculated for two or three years depending on whether the violation was willful. Courts also award liquidated damages equal to the back wages owed, effectively doubling the liability. The employee can recover attorney fees, meaning the employer pays both sides’ legal costs.

State penalties vary but often exceed federal consequences. California imposes civil penalties of $5,000 to $15,000 per violation for unintentional misclassification and $10,000 to $25,000 per violation for willful misclassification. New York assesses penalties of $2,500 for first offenses and $5,000 for subsequent violations. These penalties come in addition to back wages and liquidated damages.

Tax consequences compound the problem. Misclassification creates unpaid payroll taxes for the employer. The IRS can assess up to 3 percent of wages paid, 100 percent of FICA taxes not paid, and 40 percent of FICA taxes not withheld. The employer may also owe penalties for failure to file W-2 forms, with penalties of $50 per form adding up quickly.

Recent settlements demonstrate the financial stakes. Burlington Coat Factory paid $19.6 million to resolve claims by 1,632 assistant managers, averaging $12,000 per person. Kohl’s paid $2.9 million to settle claims by 900 assistant managers. Publix Super Markets paid $30 million to resolve overtime claims. These settlements reflect only direct wage claims, not including attorney fees, penalties, or the cost of defense.

The Fluctuating Workweek Alternative

The FLSA permits a special overtime calculation method for non-exempt salaried employees whose hours vary from week to week. Under the fluctuating workweek method, the employer pays a fixed weekly salary covering all hours worked, then pays an additional half-time premium for overtime hours rather than the usual time-and-a-half.

This method requires specific conditions. The employee’s hours must fluctuate both above and below 40 hours per week over time. The employee and employer must have a clear mutual understanding that the salary covers all hours worked, whether 30 or 50. The salary must be large enough that the employee’s effective hourly rate never drops below minimum wage, even in the highest-hours weeks.

Here is how the calculation works: An employee earning $800 weekly salary who works 50 hours has a regular rate of $16 per hour. Under standard overtime calculation, the employee would be owed an additional $80 for 10 overtime hours at half-time. The total payment is $880 for the week.

This method benefits employers when employees regularly work over 40 hours because the overtime premium is only half the regular rate rather than the full rate. It can benefit employees working variable schedules because they receive the full salary even in short weeks. However, some states like California prohibit or restrict fluctuating workweek arrangements.

Employers using this method must maintain detailed hour records, ensure written agreements with employees, and verify that the salary level always exceeds minimum wage requirements. The method works well for managers whose hours genuinely fluctuate, such as hotel managers whose workload varies with occupancy levels or project managers whose time commitments change between projects.

Pros and Cons: Hourly vs. Salaried Managers

Advantages of Hourly Managers

Hourly classification protects employees from exploitation. Managers receive fair compensation for every hour worked, eliminating the burnout that comes from working 60-hour weeks for 40-hours pay. The direct relationship between hours and pay creates transparency and aligns employer and employee interests in managing workload.

Employers gain precise control over labor costs. When business slows, hourly managers can work reduced schedules, lowering payroll expenses proportionally. When emergencies require extra coverage, hourly managers often willingly work overtime because they benefit financially from the additional hours. This flexibility helps businesses match labor costs to revenue.

Compliance risks decrease substantially. Hourly classification is always legally safe because all employees are entitled to overtime unless they qualify for an exemption. Choosing not to use an available exemption creates no liability. The only requirement is accurate time tracking and proper overtime calculation, which are manageable administrative tasks.

Morale often improves with hourly classification. Employees perceive fairness when they see direct compensation for extra effort. The resentment that builds when salaried managers work far beyond 40 hours without additional pay disappears when overtime is paid. Employee retention improves when people feel fairly treated.

Disadvantages of Hourly Managers

Administrative complexity increases with hourly managers. The employer must track time for every manager, review and approve timesheets, calculate variable overtime amounts, and maintain detailed records. Payroll costs fluctuate from week to week, making budgeting more difficult than with fixed salaries.

Some managers prefer salary status. The predictable income helps with personal financial planning. Salary status often carries prestige that matters for professional identity. Managers who value schedule flexibility may prefer not tracking hours, particularly when they sometimes work fewer than 40 hours in slower weeks.

Recruitment can be more challenging. Job seekers often view salaried positions as more desirable than hourly roles, associating salary with professional status. Competing employers offering salaried management positions may have recruitment advantages. This perception matters most in white-collar environments where hourly compensation is less common.

Costs can increase unexpectedly. If managers regularly work over 40 hours, overtime expenses accumulate quickly. An hourly manager at $25 per hour working 50 hours weekly costs $1,375 weekly, compared to $1,000 for a comparable exempt manager at $52,000 annually. The hourly structure costs $19,500 more annually at that schedule.

Advantages of Salaried Managers

Budget predictability ranks as the primary advantage. Fixed salaries create consistent labor costs regardless of hours worked. Employers can forecast expenses accurately and avoid unexpected overtime bills during busy periods. This predictability simplifies financial planning and supports stable profit margins.

Administrative burden decreases with exempt employees. No time clocks, no timesheet reviews, no overtime calculations, no fluctuating payroll amounts. Managers come and go as needed to complete their work without tracking every minute. HR departments spend less time on wage and hour compliance for exempt staff.

Schedule flexibility benefits both parties. Exempt managers can attend a doctor appointment mid-day without losing pay or exhausting leave time. They can adjust their schedules to accommodate personal needs while ensuring job responsibilities are met. Employers can ask exempt managers to handle emergencies or work unusual hours without worrying about overtime costs.

Professional development is easier with exempt positions. Managers can attend multi-day conferences, participate in extensive training programs, or work on special projects without concerns about overtime accumulation. The focus shifts from hours worked to results achieved, which can be more appropriate for management roles.

Disadvantages of Salaried Managers

Misclassification risk creates the most serious disadvantage. If the position does not meet all exemption criteria, the employer faces substantial liability for unpaid overtime. A single misclassified manager working excessive hours can generate six-figure claims when back wages, liquidated damages, penalties, and attorney fees accumulate over several years.

Employee exploitation becomes possible. Some employers treat exempt status as a license to demand unlimited hours without additional compensation. Managers working 60 or 70 hours weekly for salaries barely above the minimum threshold experience burnout, resentment, and health problems. High turnover follows, along with difficulty recruiting quality managers.

Work-life balance suffers when employers abuse the exemption. Managers feel unable to set boundaries because they are “salaried employees expected to do whatever it takes.” The lack of overtime compensation removes a natural brake on excessive hours. Progressive employers address this through policies capping expected hours, but many organizations lack such protections.

Competitive disadvantages emerge in some markets. Industries where hourly management is common put salaried employers at a disadvantage. If competing employers pay managers $30 hourly with overtime, those managers earn more than exempt managers at $60,000 salary when hours exceed 50 per week. The best candidates choose the higher-paying option.

Do’s and Don’ts for Manager Classification

Do: Conduct Regular Classification Audits

Examine the actual duties of each manager position at least annually. Document how managers spend their time through observations, work logs, or time studies. Verify that salaries meet current federal and state thresholds. Review whether managers still exercise the authority and supervision that justified initial classification.

Regular audits prevent classification drift that occurs when job duties evolve over time. A position that qualified as exempt three years ago might no longer meet the tests if responsibilities have changed. Catching problems through internal audit is vastly preferable to discovering them through a DOL investigation or employee lawsuit.

Do: Document Managerial Authority

Maintain written records of hiring and firing decisions where managers provided input. Keep copies of performance evaluations conducted by managers, disciplinary actions they imposed, and schedule or workflow decisions they made. Document training managers conduct and employees they supervise.

This documentation proves exemption status if challenged. Without it, the employer faces a credibility battle between the manager’s testimony about lacking authority and the employer’s claims that authority existed. Courts generally credit the employee’s version when the employer cannot produce supporting evidence.

Do: Pay State-Compliant Salaries

Research and apply the salary threshold for every state where you employ managers. Track state minimum wage increases that automatically trigger exemption threshold adjustments. Budget for regular salary increases as thresholds rise over time.

Underpaying by even $1,000 annually converts the employee to non-exempt status. The entire salary already paid cannot be credited against overtime obligations because an improperly paid exempt employee is treated as having been non-exempt all along. The employer owes overtime calculated from the beginning of the employment relationship.

Do: Provide Clear Job Descriptions

Write position descriptions that accurately reflect actual job duties, not aspirational responsibilities. Specify the percentage of time expected on managerial versus operational tasks. Define supervisory responsibilities and decision-making authority clearly. Update descriptions when duties change.

Accurate job descriptions guide managers in understanding their roles and help resolve disputes about classification. When an employee claims they spent 70 percent of time on non-exempt work, a detailed job description specifying 70 percent managerial duties provides evidence that the employee was not performing the assigned job.

Do: Train Managers on Their Responsibilities

Ensure managers understand their supervisory obligations. Teach them to delegate operational tasks to subordinates rather than performing those tasks themselves. Provide training on hiring, discipline, performance management, and other managerial functions. Monitor whether managers actually exercise their authority.

Many misclassification problems stem from managers who lack training or confidence in their authority. They default to doing operational work themselves rather than directing others. Proper training and support help managers function at the exempt level.

Don’t: Rely on Job Titles Alone

Never classify someone as exempt solely because their title includes Manager, Supervisor, Coordinator, or Director. Always analyze actual job duties, salary, and authority. Remember that job titles do not determine exemption under federal or state law.

This mistake is among the most common and most costly. Employers who correct classification after relying on titles avoid the accumulating liability that occurs when misclassification continues for years.

Don’t: Assume College Degrees Equal Exemption

Educational credentials do not create exempt status for executive positions. A manager with an MBA who spends the day performing the same work as subordinates is not exempt. The degree might be relevant for professional exemptions requiring advanced specialized knowledge, but not for executive exemption.

Confusing education with exemption status leads employers to misclassify supervisors who have degrees but lack the actual authority and duties required for exemption. Focus on what the employee does, not their educational background.

Don’t: Ignore Part-Time Managers

The salary threshold applies equally to part-time and full-time employees. A manager working 30 hours per week must still receive at least the weekly minimum salary to be exempt. The threshold is not prorated based on hours worked.

Many employers mistakenly believe part-time employees are automatically non-exempt or that lower salaries are permissible. In fact, the same salary and duties tests apply regardless of whether the position is part-time or full-time. Part-time exempt managers must receive the full threshold salary.

Don’t: Make Improper Salary Deductions

Avoid deducting from exempt managers’ salaries for partial-day absences, quality or quantity of work, or other reasons not permitted by DOL regulations. Improper deductions can destroy the salary basis and convert the employee to non-exempt status retroactively.

Permitted deductions include full-day absences for personal reasons, full-day absences for sickness under a bona fide sick leave plan, and penalties for serious safety violations. Partial-day deductions for any reason other than FMLA leave or initial/final weeks of employment violate the salary basis requirement.

Don’t: Create Sham Manager Positions

Never create a manager position or title solely to avoid paying overtime. Giving an employee a meaningless promotion to shift supervisor when they have no actual supervisory responsibilities and continue performing the same work as before is fraudulent and creates liability.

Courts see through these arrangements easily. The employee’s testimony about unchanged duties, combined with the employer’s inability to identify what actually changed, establishes that the promotion was pretextual. Penalties increase when courts find intentional evasion of wage laws.

Industry-Specific Considerations

Retail Management

Retail stores face unique challenges because managers often work alone during opening and closing. They regularly perform the same tasks as sales associates to maintain operations. Store schedules often require 60 or more hours from salaried managers to provide coverage seven days per week.

These factors create substantial misclassification risk. Many retail assistant managers spend the majority of their time working alone performing sales, stocking, and cashiering duties, with limited time actually supervising and directing other employees. The primary duty test frequently fails in these situations.

Solutions include using co-managers who share duties and ensure someone is always supervising, creating truly separate roles where managers plan and direct while associates execute, or classifying managers as non-exempt and carefully controlling overtime hours through adequate staffing.

Restaurant Management

Restaurants present special challenges because kitchen and service managers often work alongside staff during rush periods. The hands-on culture of food service means managers typically spend significant time cooking, serving, or cleaning rather than purely directing others.

The industry has generated massive litigation over assistant manager misclassification. Successful claims typically show managers who work entire shifts as cooks, food runners, or servers with minimal time spent on scheduling, ordering, training, or other managerial tasks.

Best practices include documenting that managers work alongside staff for training and quality control purposes rather than to fill labor gaps, ensuring managers have genuine authority over hiring and firing, and providing adequate staffing so managers can focus on management rather than execution.

Healthcare Management

Healthcare facilities employing nurse managers, laboratory supervisors, and department heads must navigate professional exemption rules alongside executive exemption. A nurse manager might qualify for professional exemption based on nursing duties or executive exemption based on supervisory responsibilities.

The key issue is whether the manager spends more time providing direct patient care than managing and directing nursing staff. Clinical work is not managerial work, even when performed by someone with a manager title. A nurse manager who takes patient assignments and provides direct care for 60 percent of a shift is performing professional work, not management.

Documentation of time allocation is critical. Healthcare employers should track how managers spend their time and ensure managerial duties truly predominate. Consider team structures where charge nurses handle clinical coordination while nurse managers focus on staff management.

Banking and Financial Services

Bank branch managers and assistant managers face classification challenges similar to retail. JPMorgan Chase paid $8.3 million to settle claims that assistant branch managers who performed teller duties were misclassified as exempt. The critical question is whether managers primarily direct operations or primarily serve customers.

A branch manager who handles transactions, opens accounts, processes loans, and resolves customer issues performs the same work as personal bankers and tellers. The manager title alone does not create exemption when the primary duty is customer service rather than staff management.

Financial institutions should ensure branch managers spend the majority of time on tasks like training staff, conducting performance reviews, making staffing decisions, analyzing branch performance, and implementing policies rather than performing routine banking transactions.

Frequently Asked Questions

Can a manager be paid hourly?

Yes. Managers can be paid hourly and receive overtime for hours over 40 per week. Federal law does not require exempt classification even when managers meet all criteria. Hourly manager positions are legal and common.

Does a manager title automatically mean exempt?

No. Job titles have no legal effect on exempt status. The actual duties performed, salary level, and supervisory authority determine classification, not the position name or organizational chart placement. Many titled managers are legally non-exempt.

What is the minimum salary for exempt managers in 2026?

The federal minimum is $684 weekly or $35,568 annually. California requires $70,304 annually. New York mandates $66,300 in NYC metro and $62,353 elsewhere. Washington requires approximately $80,168 annually. Apply the higher threshold when federal and state differ.

Can part-time managers be exempt?

Yes. Part-time managers can be exempt if they meet salary and duties tests. The salary threshold is not prorated for part-time workers. A manager working 25 hours weekly must still receive at least $684 weekly to potentially qualify as exempt.

Do managers always supervise at least two employees?

No. Only exempt managers must supervise two or more full-time equivalent employees. Many managers with fewer direct reports work on hourly basis or qualify under different exemptions like administrative or professional rather than executive exemption.

Can employers reclassify managers from exempt to non-exempt?

Yes. Employers can reclassify any employee from exempt to non-exempt at any time. The change should be communicated positively, emphasizing overtime eligibility as a benefit. Systems must be updated for time tracking and overtime calculation purposes.

What happens if a manager is misclassified?

The employer owes back wages for unpaid overtime, liquidated damages equal to back wages, penalties, and attorney fees. State penalties can reach $25,000 per violation. The total liability commonly exceeds $50,000 per misclassified manager working excessive hours for two years.

Do business owners need to be exempt?

No. Business owners with 20 percent or more equity who actively manage the business are automatically exempt under federal law, but owners can choose to pay themselves hourly and track overtime if preferred. Some owners do this for tax or accounting purposes.

Can exempt managers also receive overtime pay?

No. Exempt employees are not entitled to overtime pay by definition. However, employers can voluntarily pay bonuses or additional compensation to exempt employees who work long hours. Such payments are discretionary and not legally required under the FLSA.

Are shift managers exempt from overtime?

It depends on their duties. Many shift managers spend most of their time performing the same work as subordinates with limited true supervisory responsibilities. These positions frequently fail the primary duty test and are non-exempt despite the manager title.

How do state and federal exemptions interact?

Employers must satisfy both federal and applicable state exemption requirements. When requirements differ, the standard that provides greater employee protection applies. If state salary thresholds exceed federal minimums, the state threshold controls and employers must comply with both laws.

Do managers need authority to hire and fire?

Yes. The executive exemption requires genuine authority over hiring and firing or that hiring and firing recommendations receive particular weight. Managers who merely conduct interviews without actual decision-making authority do not meet this requirement for federal exemption.

Can managers lose exempt status by performing non-exempt work?

Yes. If non-exempt work becomes the primary duty, the manager loses exempt status. Occasional non-exempt work is permissible, but when operational tasks consume more time than managerial duties, exemption fails regardless of job title or original classification intent.

What records must employers keep for exempt managers?

Employers must maintain records of exempt employees’ names, addresses, occupations, and total weekly earnings. Unlike non-exempt employees, detailed daily time records are not required for exempt workers, though some states require tracking certain leave time and absences.

Are restaurant managers entitled to overtime in California?

It depends on duties and salary. California requires managerial salaries of at least $70,304 annually. Managers earning less are automatically non-exempt. Managers meeting salary threshold must also primarily perform executive duties with genuine authority to qualify as exempt employees.