Compliance & Payroll Basics · Policy-manual review
How to Classify Exempt Employees: A Practical 2026 Checklist
Step-by-step exempt classification checklist for SMB payroll: salary basis, federal and state salary floors, duties tests, and documentation before you mark someone exempt in software.
At a glance
Treat "exempt" as a legal conclusion supported by salary and duties evidence, not a payroll checkbox. Walk this checklist whenever someone is hired into a salaried role, promoted, or drifts into different daily work. The federal salary floor for 2026 is $684/week, but six states set higher thresholds. Full legal background lives in our exempt vs non-exempt employees guide; this page is the worksheet managers and HR can actually run.
- Verify salary is paid on a true salary basis without improper docking for partial-week absences
- Compare salary to $684/week federally and to any higher state threshold for each worksite
- Pick the exemption category (executive, administrative, professional, computer, outside sales, or HCE) and list specific duties that satisfy that test
- Confirm the role is not in a non-exempt category regardless of pay (manual labor, first responders)
- Store the written classification memo in the personnel file and re-run the checklist when duties change
§1Step 1: Salary basis and amount
Start with pay mechanics. Exempt white-collar employees must receive a predetermined salary that is not subject to reduction based on the quality or quantity of work in a given week, with limited exceptions DOL lists in Fact Sheet 17A.
Then compare the gross salary to the applicable threshold. Federally that is $684 per week for 2026. If the employee works in California, Washington, New York, Colorado, Alaska, or Maine, pull the state figure from our 2026 exemption salary threshold explainer or the state table inside the main exempt guide.
§2Step 2: Duties test by category
Executive exemption requires managing a department, directing two or more full-time employees, and real input into hiring and firing. Administrative exemption requires office work tied to management or general business operations plus discretion on matters of significance. Professional exemption requires advanced knowledge typically acquired through prolonged study, or creative work in recognized artistic fields.
Computer employee exemption covers specific systems and programming work at $684/week salaried or $27.63/hour if hourly. Outside sales requires making sales away from the employer's place of business on a regular basis. Highly compensated employees have a separate total-pay test and a reduced duties standard.
If the role looks like a mislabeled contractor instead of an employee, stop and run our contractor vs employee tests before debating exemption at all.
§3Step 3: Document and configure payroll
Write a short memo: job title, primary duties, who sets the schedule, exemption category claimed, salary, and state thresholds checked. Attach it to the personnel file before payroll marks the profile exempt.
Configure overtime rules for anyone who fails the test. Hourly and non-exempt salaried teams need state overtime and on-call rules applied correctly; see FLSA on-call pay when waiting time is part of the job. Published payroll pricing is irrelevant until classification is right, but once it is, compare plans in our Gusto pricing guide or quote-based Paychex pricing ranges for the workflow you actually need.
§4Frequently asked questions
Can we rely on the job description alone? No. Investigators look at what the person does. Update the checklist when day-to-day work changes even if the description does not.
What if salary clears federal but not state? The employee is non-exempt for overtime in that state even if another state would treat the same salary as exempt.
Does payroll software classify employees for us? No. Software enforces the status you enter. Misclassification liability stays with the employer.