Minimum Wage vs. Salary Basis: The FLSA Exemption Guide (2025)
- The FLSA’s federal minimum wage for covered, non-exempt workers is $7.25/hour (states can require more).
- To classify a worker as exempt from minimum wage and overtime, employers must satisfy all three: the salary basis test, the salary level, and the appropriate duties test (executive, administrative, professional, outside sales, or certain computer employees).
- As of Nov 2025, due to a federal court decision, the U.S. Department of Labor (DOL) is enforcing the $684/week standard salary level (the 2019 rule), not the higher 2024/2025 thresholds. Watch for appeals and updates.
- Paying a “salary” alone does not make an employee exempt; job duties and how pay is handled matter just as much.
Minimum wage vs. exemptions: how they interact
The FLSA sets a federal floor for minimum wages and requires overtime pay at 1.5× the regular rate for hours worked over 40 in a workweek—unless a valid exemption applies. If a worker is non-exempt, the employer must meet the higher of federal, state, or local minimum wage and pay overtime. If a worker is exempt under Section 13(a)(1), the minimum wage and overtime rules don’t apply—but only if the employer proves the exemption’s elements: salary basis, salary level, and duties.
The salary basis test, in plain English
The salary basis test asks whether the employee is paid a predetermined amount each pay period that is not reduced because of variations in the quality or quantity of work performed. In other words, a true salaried exempt employee receives the full salary for any week in which the employee performs any work, with only a few permissible deductions allowed by regulation.
- Full weekly salary is paid for any week with any work performed.
- Deductions only in narrow, allowed cases (e.g., full-day absences for personal reasons; full-day disciplinary suspensions for major safety or conduct violations; unpaid FMLA time; prorated first/last week of employment).
- Consistent payroll practice + a written “safe-harbor” policy that reimburses improper deductions promptly.
- Docking pay for partial-day absences (outside FMLA) or for dips in workload/quality.
- Making ad hoc reductions tied to hours, output, or revenue.
- Classifying as “salaried” but then treating pay like an hourly wage (e.g., docking for minutes late).
Salary level and duties tests (quick refresher)
- Salary level: a minimum weekly salary must be met. See “Current figures” below.
- Duties: the employee’s primary duties must fit an exemption (executive, administrative, learned or creative professional, outside sales, or certain computer employees). Titles alone don’t count.
- Highly Compensated Employee (HCE) alternative: a higher total-comp threshold plus a simplified duties screen; still requires salary basis.
Current figures (federal)
| Item | Amount | Notes |
|---|---|---|
| Federal minimum wage | $7.25/hour | Since July 24, 2009. States/cities may require more; the higher rate governs. |
| Standard salary level (EAP exemptions) | $684/week | Effective for enforcement as of Nov 2025 after a Nov. 15, 2024 court decision vacated the 2024 overtime rule. DOL has appealed; monitor updates. |
| HCE total annual compensation | $107,432/year (incl. at least $684/week on a salary or fee basis) | Same enforcement posture noted above. |
| Tipped cash wage / tip credit (federal) | $2.13 cash wage + up to $5.12 tip credit = $7.25 | Only where allowed and if tips actually bring the worker to at least the applicable minimum wage; stricter state rules override. |
Many states set higher minimum wages and some (e.g., California, New York) tie exempt salary thresholds to multiples of the state minimum wage or have their own duties rules. Always check the jurisdictions where employees work; the more protective standard generally controls.
Visual: weekly pay scenarios (illustrative)
Relative bar lengths compare common figures to the vacated 2025 salary level of $1,128/week (shown as 100%).
How minimum wage and salary basis collide in practice
Scenario A — Non-exempt calculation at federal floor
Assume a non-exempt employee works 50 hours at the federal minimum wage of $7.25. The minimum owed is:
40 × $7.25 = $290 plus 10 overtime hours × $10.875 = $108.75, for a total of $398.75 that week.
Scenario B — Exempt candidate on salary
An employer pays a “salary” of $700/week to a front-line supervisor who regularly works 50–55 hours. If the role does not meet the duties test (e.g., few genuine management responsibilities), the employee is actually non-exempt, and the employer owes minimum wage and overtime; the label “salary” doesn’t change that. If the duties test is met, the salary basis appears satisfied, and the salary level of $684/week is met—so the worker may be exempt under federal law (state law still must be checked).
Scenario C — Salary docking
A design lead is paid $1,050/week but the employer docks half-days for slow periods. Repeated improper partial-day deductions can destroy salary basis and retroactively non-exempt the employee, triggering back overtime liabilities. A compliant safe-harbor policy and prompt reimbursement of improper deductions help preserve the exemption.
Permissible vs. impermissible deductions (quick reference)
| Generally permissible | Why |
|---|---|
| Full-day absences for personal reasons | Regulations allow full-day deductions for purely personal time off. |
| Full-day disciplinary suspensions | Serious workplace misconduct or safety violations (written policy required). |
| Unpaid FMLA leave | FMLA can be unpaid; partial-day docking allowed when FMLA applies. |
| First/last week proration | When employment begins or ends mid-week. |
| Generally impermissible | Why |
|---|---|
| Partial-day absences (non-FMLA) | Undercuts the concept of a fixed weekly salary. |
| Docking for slow business/quality | Links pay to quantity/quality of work—violates salary basis. |
| Ad hoc deductions for minor infractions | Suggests hourly treatment; risks losing exemption. |
Compliance checklists
- Map every exempt role to a specific duties test with documentation.
- Confirm salary basis (no impermissible deductions) and implement a safe-harbor policy.
- Verify salary level: at least $684/week under current federal enforcement; confirm any higher state threshold.
- For tipped workers, ensure compliant tip credit practices and regular tip audits to guarantee take-home meets the applicable minimum wage.
- Train managers not to approve off-the-clock work and to handle timekeeping consistently.
- Are you paid a fixed weekly salary regardless of hours or workload dips?
- Do your primary duties match the exemption definition (e.g., supervising two or more full-time employees, authority on hiring/firing, independent discretion on significant matters, etc.)?
- Is your weekly pay at least the applicable salary threshold and compliant with your state’s rules?
- Do you ever see partial-day pay docking (non-FMLA)? That’s a red flag.
Quick Guide
- Minimum wage applies to non-exempt workers; exemptions remove both minimum wage and overtime obligations only if all tests are met.
- Current federal enforcement: $684/week salary level for EAP exemptions; $7.25/hour federal minimum wage; local/state rules may be higher.
- Salary basis means a steady weekly amount, not docked for workload or quality, with limited, specific deductions.
- Duties matter: job titles or “being salaried” don’t determine exemption.
- For tipped employees, ensure cash wage + tips reach at least the applicable minimum wage every workweek; follow notice and pooling rules where applicable.
- Document roles, maintain a safe-harbor policy, and audit classifications at least annually or when job content changes.
FAQ
Does paying a salary automatically make someone exempt?
No. Exemption requires salary basis, salary level, and the right duties. Missing any one means the worker is non-exempt.
What is the salary basis test in one sentence?
It’s being paid a fixed weekly amount not subject to reduction based on the quality or quantity of work, with only narrow regulatory deductions allowed.
What is the current federal minimum salary for exemption?
$684 per week under DOL’s current enforcement posture as of November 2025, following a federal court decision. Some states require more.
Are there different rules for highly compensated employees (HCE)?
Yes. HCE status needs a higher total annual compensation (currently $107,432 for federal enforcement) and a minimal duties screen, but still requires salary basis.
Can an employer dock an exempt employee for arriving late?
Generally, no (outside specific contexts like unpaid FMLA). Docking for partial-day absences risks losing the exemption. Use leave banks instead.
How do state minimum wages affect exempt thresholds?
Some states tie exempt salaries to state minimum wage (e.g., multiples of hourly rates). In those places, state thresholds may exceed federal.
Can bonuses count toward the salary level?
Under federal rules, certain nondiscretionary bonuses and incentive payments may satisfy part of the salary level (subject to caps and catch-up rules). Check your jurisdiction and plan design.
Is outside sales exempt from salary requirements?
Outside sales employees are exempt without meeting the salary level test, but they must meet the outside sales duties definition.
How does the tip credit interact with minimum wage?
Employers may take a tip credit (where legal) so long as the cash wage + tips reach at least the applicable minimum wage every workweek and all notice/recordkeeping rules are satisfied.
What if a court changes the federal thresholds again?
Monitor DOL guidance and court rulings. Employers should build contingency pay plans and update payroll systems promptly when thresholds change.
Does remote work change the analysis?
No. The same exemption tests apply. But state law will follow the state where the employee works, which can change the applicable minimum wage or salary threshold.
If we misclassified someone, what’s the fix?
Reclassify prospectively, pay any back wages/overtime, consider using a formal safe-harbor process, and train managers. Consult counsel for remediation strategy.
Examples that teams can paste into SOPs
| Use case | Good practice | Risk if ignored |
|---|---|---|
| Slow week for an exempt manager | Pay the full weekly salary; require PTO usage per policy for full-day absences. | Partial-day docking undermines salary basis and can convert the role to non-exempt. |
| Tipped servers in a state with higher minimum wage | Check state cash wage and tip credit limits; run weekly true-ups to ensure effective rate meets or exceeds the state minimum. | Shortfalls trigger back wages, penalties, and loss of tip credit. |
| New lead engineer (computer employee) | Confirm duties meet the computer exemption and pay either hourly at or above the regulatory rate or on a compliant salary basis. | Misclassification exposes overtime liability; titles alone don’t qualify. |
- “Salaried = exempt.” False. Salary is one piece of a three-part test.
- “We can dock a few hours; it’s still a salary.” Repeated improper deductions can void the exemption.
- “Federal rules are the only rules.” State/local laws may be stricter and usually control.
Legal basis & technical notes (federal)
- Minimum wage: 29 U.S.C. § 206; federal floor currently $7.25/hour.
- Overtime: 29 U.S.C. § 207 (time-and-a-half over 40 hours).
- EAP exemptions: 29 U.S.C. § 213(a)(1); regulations at 29 C.F.R. Part 541.
- Salary level: 29 C.F.R. § 541.600 (DOL currently enforces $684/week following court action; DOL has appealed).
- Salary basis: 29 C.F.R. § 541.602 (and safe-harbor at § 541.603).
- HCE: 29 C.F.R. § 541.601 (total annual compensation threshold; salary-basis still required).
- Tipped employees: 29 U.S.C. § 203(m); 29 C.F.R. part 531 (tip credit mechanics, notice, pooling, dual jobs).
The salary basis test is about how you pay; the salary level is about how much you pay; the duties test is about what the employee actually does. You must satisfy all three (and any stricter state rules) to treat a worker as exempt from minimum wage and overtime.
This material is for general information only and is not legal advice. Consult qualified counsel for advice on your specific facts and jurisdictions.