Understanding the difference between exempt and non-exempt isn't just about compliance—it's about protecting your business from costly missteps. Employers who take a proactive approach can turn compliance into a competitive advantage.
Describe the current legal landscape for classifying employees
The Department of Labor (DOL) and courts look closely at the duties performed, not just the pay structure; the duties test remains the core component of exemption classification. Salary does not automatically equate to exempt status.
In short, even highly paid workers can be misclassified if their job duties don’t meet the criteria set by the Fair Labor Standards Act (FLSA). And if they are misclassified, employers could be liable for years of backpay, liquidated damages, and attorneys’ fees.
What should employers watch out for when classifying their workers?
Businesses often trip up in a few key areas when classifying workers, including:
- Inflated Job Titles: exaggerating job duties that the employee does not actually perform or calling someone a "manager" or other high-level position, regardless of actual job duties.
- Underpaid Salaried Workers: paying less than the applicable federal or state minimum salary threshold or making improper salary deductions for partial-day absences or work slowdowns.
- Failure to Apply the Duties Test: assuming salary or a high-level job title alone means the employee is “exempt".
- Failure to Monitor and Account for Remote Work and Off-the-Clock Time: failing to account for time worked remotely or off-the-clock and failing to apply the proper state law for remote employees.
What are the legal and financial risks to employers for misclassifying employees?
FLSA violations can carry steep penalties for employers, such as:
- Back pay for unpaid overtime (up to three years if the violation was willful)
- Liquidated damages (often doubling the amount owed)
- Attorneys’ fees and costs (which can exceed the amount of unpaid wages in class or collective actions)
- Class/collective action exposure if multiple employees are misclassified
- Civil money penalties for repeated violations or willful misclassification
- Additional state penalties and reputational harm with employees and regulators
What practical steps should businesses take to ensure compliance?
Conduct Internal Classification Audits. Review and update employee classifications and job descriptions periodically based on the actual duties performed, including when responsibilities change. Do not rely on pay structure or job titles alone; confirm that both the salary threshold and the duties test are met for each exempt role. Track where remote employees work to ensure the correct state law is applied.
Reclassify When Necessary—But Strategically. If an error is discovered, fix it, document it, and seek legal advice before making retroactive pay adjustments. Review pay structures periodically to ensure compliance with updated thresholds and consult legal counsel before classifying borderline roles such as "assistant managers", which are often at the center of lawsuits.
Train Management. Educate supervisors on the current exemption requirements and the importance of time tracking and maintaining accurate records of hours worked by non-exempt employees, as well as prohibiting "off-the-clock" work.
Monitor Regulatory Updates. Designate HR, legal, or compliance staff to monitor federal and state DOL updates. Work with legal counsel to identify changes, such as shifts in case law interpretations of the “primary duty."
Final Takeaway
We encourage employers and business owners who have specific questions about employee classification or any other employment law topics to contact the author, Haley Harrigan.
Click here to read the article published in the November 2025 issue of In Business Magazine.
About the Author
Haley Harrigan represents and counsels individuals, small businesses, franchised operations, and large companies on a wide range of employment issues, ranging from internal compliance to wage-and-hour litigation. She serves as chair of the firm’s employment and labor law department.