Payroll Management & Administration
Understanding Your Pay
The American Payroll Association recently released their Understanding Payroll series, so let’s take this moment to review some payroll basics.
Does a Salary Mean an Employee Is Exempt from Overtime?
Learn about employee classifications under the Fair Labor Standards Act and understand the nuances of overtime eligibility for salaried workers.
PRemployer
Aug 25, 2026
Does a Salary Mean an Employee Is Exempt from Overtime?
10:00
Wage and Hour Compliance
Wage and hour compliance often comes down to a single question (that your payroll software cannot make for you): is each employee exempt or non-exempt under the Fair Labor Standards Act? How you pay someone doesn’t answer that question. An employee on a flat salary can still be owed overtime, and a large share of the wage claims filed against small businesses trace back to a salaried worker who was assumed to be exempt and worked well past 40 hours a week for years before anyone checked.
The work of staying compliant is, believe it or not, classification work, hour tracking, and recordkeeping. And it should be done on a schedule rather than in response to a complaint. Test every position against the salary basis, salary level, and duties requirements, track hours for every non-exempt employee no matter how they are paid, pay for all the time you know about or should know about, and keep the records long enough to prove it.
Table of Contents
- What Does the FLSA Require of Salaried and Hourly Teams?
- What Makes an Employee Exempt from Overtime?
- Why Do Salaried Employees Cause the Most Trouble?
- What Work Time Do You Have to Pay For?
- What Wage and Hour Records Are You Required to Keep?
- How Should You Audit Your Own Classifications?
- Ready to Take Classification Off Your Desk?
- Frequently Asked Questions
What Does the FLSA Require of Salaried and Hourly Teams?
It requires you to pay at least the federal minimum wage for every hour worked and one and a half times the regular rate for every hour over 40 in a workweek, to every employee who is not properly exempt. Whether you cut that person a salary or an hourly check has no bearing on the obligation.
Alabama has no state minimum wage law and no state overtime law, so federal rules are the whole rulebook for Wiregrass employers. That means $7.25 an hour as the floor and 40 hours as the overtime trigger. It also means the workweek matters more than the pay period. A workweek is a fixed, recurring period of 168 consecutive hours, and overtime is calculated inside it. You cannot average a 50-hour week against a 30-hour week in the same biweekly pay run and call it even, which is one of the more common errors we see in businesses that switched to biweekly payroll without changing how they calculate overtime.
What Makes an Employee Exempt from Overtime?
An employee is exempt only when all three tests are satisfied, and failing any one of them makes the employee non-exempt regardless of the other two.
- Salary basis: the employee receives a predetermined amount each pay period that does not vary with the quality or quantity of work performed.
- Salary level: the salary meets or exceeds the Department of Labor threshold in effect, which is $684 per week, or $35,568 a year, under the standing regulation.
- Duties: the employee's actual day-to-day responsibilities fit one of the recognized exemptions, which are executive, administrative, professional, outside sales, and certain computer roles.
The duties test is where most classifications fall apart, because it turns on what the person really does rather than what the job description or the title says. An assistant manager who spends most of the week running a register and stocking shelves is not performing exempt executive duties, no matter how the offer letter reads.
Why Do Salaried Employees Cause the Most Trouble?
Because paying a salary feels like an answer, so nobody goes back and asks the question. Office managers, shift supervisors, bookkeepers, dispatchers, and lead technicians end up on salary for practical reasons, and the exemption analysis never happens.
There is a second failure mode that catches employers who did classify correctly. Docking an exempt employee's pay for a partial-day absence, a slow week, or a disciplinary issue outside the narrow permitted reasons can break the salary basis, and losing it can strip the exemption from every employee in that job classification, not just the one whose check you adjusted. The savings from a single deduction rarely survive contact with the resulting back pay calculation.
What Work Time Do You Have to Pay For?
All of it, including work you did not ask for, if you knew about it or reasonably should have. This is the standard that surprises owners most, because it puts the burden on the employer to control the work rather than on the employee to report it honestly.
- Answering calls, texts, and email after hours or on weekends counts as hours worked for a non-exempt employee.
- Pre-shift setup, post-shift cleanup, and required opening or closing routines are compensable.
- Rest breaks of roughly 20 minutes or less are paid time. A bona fide meal period of 30 minutes or more is unpaid only when the employee is fully relieved of duty, so a worker eating at a desk while covering the phone is on the clock.
- Travel between job sites during the workday is paid, though the ordinary home-to-work commute is not.
- Required training and mandatory meetings are hours worked.
Overtime is also calculated on the regular rate, not the base rate, and the regular rate includes non-discretionary bonuses, shift differentials, and most incentive pay. A production bonus paid quarterly has to be allocated back across the weeks it covers and the overtime recalculated. That step gets skipped constantly, and it is one of the first things a Wage and Hour investigator looks for.
What Wage and Hour Records Are You Required to Keep?
For every non-exempt employee, you need identifying information, the hours worked each day and the total for each workweek, the regular hourly rate, straight-time and overtime earnings, additions to and deductions from wages, total wages per pay period, and the pay date. Payroll records are kept for three years, and the records used to compute wages, including time cards and work schedules, are kept for two.
The reason to be strict about this is not the recordkeeping penalty. It is that when an employer has no reliable time records, courts have long allowed the employee's reasonable estimate of hours worked to carry the day, and the employer is left arguing against a recollection with nothing on paper. Good records are the employer's defense, not the employee's.
How Should You Audit Your Own Classifications?
Start with a list of every salaried employee and spend one week writing down what each of them actually does, then compare that record against the duties tests rather than against the job description. Three practical steps make the audit useful instead of ceremonial.
- Flag every position where you hesitated, because hesitation is the finding. Certainty in either direction rarely needs a second look.
- Check pay history for partial-day deductions, unpaid suspensions, and salary reductions tied to workload, all of which put the salary basis at risk.
- Verify that non-exempt salaried employees have real time records. Paying a salary does not remove the obligation to track hours.
When the audit turns up a misclassification, correct it going forward first and get counsel involved before deciding how to handle back wages. Reclassifying quietly and hoping the question never comes up tends to make the eventual exposure larger rather than smaller.
The safest habit is to treat exempt status as a decision with an expiration date. Re-run the analysis whenever a job's responsibilities change, whenever someone is promoted, and once a year for everyone.
Ready to Take Classification Off Your Desk?
If reading through the duties tests raised a question about even one position on your payroll, that question is worth settling now rather than after a complaint arrives. Our HR and payroll team reviews classifications, pay practices, and time records for Alabama employers as an ongoing part of the relationship, not as a one-time project you have to budget for separately. Get in touch with the PRemployer team and we will walk your payroll list with you.
Get in touch with the PRemployer teamFrequently Asked Questions
Can a Salaried Employee Earn Overtime?
Yes. Salary is a pay method, not an exemption. A salaried employee who does not meet the salary level and duties tests is non-exempt and is owed overtime for hours worked past 40 in a workweek, calculated on the regular rate derived from that salary.
Does Alabama Have Its Own Overtime Law?
No. Alabama has neither a state minimum wage nor a state overtime statute, so employers follow the federal Fair Labor Standards Act. That simplifies the analysis, though it also means there is no state agency guidance to fall back on when a classification is close.
Can I Give Comp Time Instead of Paying Overtime?
Private-sector employers cannot. Compensatory time in place of overtime pay is available to public agencies under specific conditions. A private business owes the overtime in cash in the pay period the hours were worked. And, even in cases where employees don’t expect to be paid for overtime, the employer still owes it.
What Happens If I Misclassify Someone by Accident?
Good faith limits the damage but does not eliminate it. Employers generally face back wages for two years, extended to three for willful violations, and liquidated damages equal to the back pay amount unless the employer can show the misclassification was made in good faith with reasonable grounds.
How Often Should We Review Classifications?
Once a year at minimum, and any time a role changes materially. Promotions, restructures, and the quiet accumulation of new duties are what move a job across the exempt line without anyone deciding to move it.