Exempt vs. Nonexempt Employees in Minnesota

What does it mean to be exempt from overtime in Minnesota?

For the federal executive, administrative, and professional exemptions, an employee is “exempt” when the position satisfies a salary level, currently $684 per week (29 C.F.R. § 541.600), the salary basis rule (29 C.F.R. § 541.602), and the relevant duties test (29 C.F.R. § 541.100, § 541.200, and § 541.300). A salary or a job title alone does not make the position exempt, because under 29 C.F.R. § 541.2, “[a] job title alone is insufficient to establish the exempt status of an employee,” and status is determined “on the basis of whether the employee’s salary and duties meet the requirements of the regulations in this part.”

An employee who meets no exemption is nonexempt. A nonexempt employee covered by the federal Act is owed at least one and one-half times the regular rate for hours over 40 in a workweek under 29 U.S.C. § 207(a)(1). Minnesota’s own overtime rule starts after 48 hours under Minn. Stat. § 177.25, subd. 1. The 48-hour section below explains how the two fit. An exemption also does not end every federal wage obligation. 29 U.S.C. § 213(a) withholds the minimum wage and overtime sections “except subsection (d) in the case of paragraph (1).” Subsection (d) of 29 U.S.C. § 206 is the equal pay rule, so an exempt executive, administrative, professional, or outside sales employee keeps its protection against sex-based pay differences for equal work.

Several categories run on different pay rules. Outside sales has no salary requirement, because 29 C.F.R. § 541.500(c) provides that the salary requirements “do not apply to the outside sales employees described in this section.” Teachers, employees holding a valid license to practice law or medicine who are actually practicing, and medical interns and residents are outside the salary tests under 29 C.F.R. § 541.600(e), though that same subsection stops the medical carve-out at licensed practitioners: it “does not apply to pharmacists, nurses, therapists, technologists, sanitarians, dietitians, social workers, psychologists, psychometrists, or other professions which service the medical profession.” A computer employee who meets the primary-duty test may satisfy the compensation requirement on an hourly basis at not less than $27.63 an hour under 29 C.F.R. § 541.400(b) and 29 U.S.C. § 213(a)(17).

Minnesota recognizes parallel exclusions under Minn. Stat. § 177.23, subd. 7, but the state framework is not the federal one. Minnesota’s exclusions are definitional: subdivision 7 removes the individual from the meaning of “employee” for sections 177.21 to 177.35 generally, not merely from the overtime section, except where a clause scopes itself to one section. Minnesota’s own primary-duty rule runs parallel to the federal one, and it is conjunctive: under Minn. R. 5200.0180, subp. 1, “[t]he primary duties of the employee are determinative of his or her status under this exemption,” and “[o]nly where the employee’s primary duties meet all the criteria under a particular test may the employer consider the employee to be exempt from the overtime wage provisions.”

The main federal white-collar exemptions discussed here are executive, administrative, professional, outside sales, and computer employees, each defined by its own duties regulation in 29 C.F.R. Part 541. 29 U.S.C. § 213(a) contains many additional exemptions outside the white-collar set, and subsection (b) is a separate overtime-only list covering motor carrier, rail, and air employees, seamen, dealership salespeople and mechanics, taxicab drivers, live-in domestic workers, movie theater employees, and small forestry operations. Check both: an employee exempt only under § 213(b) still receives the federal minimum wage.

Where the legislature meant Minnesota to follow a federal exemption, it said so by cross-reference. The seafarer clause points to 29 U.S.C. § 213(b)(6) and the transportation clause to 49 U.S.C. § 31502. Clause (6), which carries the executive, administrative, professional, and salesperson exclusions, carries no such cross-reference, and no clause anywhere in subdivision 7 names computer or software workers.

Labeling a position “salaried exempt” based on the salary alone, without ever running the duties test, creates misclassification exposure.

What is the duties test for exempt employees under the FLSA?

The duties test is the part of the analysis that looks at what the employee actually does, and no salary satisfies it. The Department of Labor’s regulations set a separate duties test for each white-collar exemption, and each test is conjunctive: the employee is exempt only if every element of one test is met, pay elements included. An employee covered by the Act who meets no test and no other exemption is owed overtime under 29 U.S.C. § 207(a)(1).

• Executive (29 C.F.R. § 541.100(a)): paid on a salary basis at not less than $684 per week; a primary duty of managing the enterprise or a customarily recognized department or subdivision; customarily and regularly directing the work of two or more other employees; and authority to hire or fire, or hiring, firing, and promotion recommendations that are given particular weight.
• Administrative (29 C.F.R. § 541.200(a)): paid on a salary or fee basis at not less than $684 per week; a primary duty of office or non-manual work directly related to the management or general business operations of the employer or its customers; and a primary duty that includes the exercise of discretion and independent judgment with respect to matters of significance.
• Professional (29 C.F.R. § 541.300(a)): paid on a salary or fee basis at not less than $684 per week, with exceptions for teachers, practicing lawyers and physicians, and medical interns and residents; and a primary duty of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction, or work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.
• Computer employee (29 C.F.R. § 541.400(b)): paid at least $684 per week on a salary or fee basis or at least $27.63 an hour, with a primary duty of systems analysis, programming, or similarly skilled computer work.
• Outside sales (29 C.F.R. § 541.500(a)): a primary duty of making sales or obtaining orders or contracts for services or for the use of facilities, performed customarily and regularly away from the employer’s place of business, with no salary test.

Duties alone never rescue a position that fails the pay element. Under 29 C.F.R. § 541.600(a), an exempt executive, administrative, or professional employee “must be compensated on a salary basis at a rate of not less than $684 per week.” The same section lists alternatives, such as the fee basis and the rules for academic administrators, computer employees, teachers, and practicing lawyers and physicians. Outside sales has no pay element at all, because 29 C.F.R. § 541.500(c) takes outside sales employees out of the salary requirements.

Every test turns on the employee’s primary duty, defined in 29 C.F.R. § 541.700 and worked through in the executive section below. Minnesota applies its own duties tests in Minn. R. 5200.0190, 5200.0200, and 5200.0210, so a position needs a separate state analysis even when it meets a federal test.

What is the FLSA exempt salary threshold in 2026?

The federal salary threshold for the executive, administrative, and professional exemptions is $684 per week, or $35,568 per year, payable on a salary basis under 29 C.F.R. § 541.600(a). Administrative and professional employees may instead be paid on a fee basis as defined in 29 C.F.R. § 541.605; executives may not.

That figure survived a four-year fight, and the fight is now over. The 2024 Department of Labor rule, 89 Fed. Reg. 32842 (Apr. 26, 2024), raised the level to $844 per week on July 1, 2024 and was scheduled to raise it again to $1,128 per week ($58,656 per year) on January 1, 2025. 89 Fed. Reg. 32842 (Apr. 26, 2024). On November 15, 2024, the United States District Court for the Eastern District of Texas granted summary judgment and ordered that “[t]he 2024 Rule is hereby SET ASIDE and VACATED,” with nationwide effect. Texas v. U.S. Department of Labor, No. 4:24-CV-499-SDJ (E.D. Tex. Nov. 15, 2024). The Fifth Circuit dismissed the government’s appeals on May 5 and 7, 2026, and a technical amendment effective May 15, 2026 removed the vacated text from the regulations and republished the 2019 text, so the codified section itself now reads $684 per week and the highly compensated employee threshold is again $107,432. 91 Fed. Reg. 27833, 27834 (May 15, 2026). In the Department’s words, “the operative version of the Department’s part 541 regulations is the version of these regulations that was in place on June 30, 2024, prior to the effective date of the 2024 rule, and which the Department has been enforcing.” The 2024 increases no longer appear in the regulations, so you can retire any payroll plan built on $844 or $1,128 a week. The Department noted that the technical amendment does not foreclose future rulemaking to update the part 541 regulations.

The $684 level took effect January 1, 2020, replacing the 2004 rule’s $455 per week ($23,660 per year), a figure that still circulates in older employment materials. 84 Fed. Reg. 51230 (Sept. 27, 2019).

Payroll runs on periods longer than a week, and the regulation gives you the equivalents. Under 29 C.F.R. § 541.600(b), the $684 weekly requirement is met by $1,368 biweekly, $1,482 semimonthly, or $2,964 monthly, and “the shortest period of payment that will meet this compensation requirement is one week.” If a base salary sits just under the line, 29 C.F.R. § 541.602(a)(3) lets up to ten percent of the required amount be satisfied by nondiscretionary bonuses, incentives, and commissions paid annually or more frequently, measured over any 52-week year the employer identifies in advance (the calendar year applies by default). That credit “does not apply to highly compensated employees under § 541.601.” Schools have their own alternative: under 29 C.F.R. § 541.600(c), an academic administrative employee can be paid at least the entrance salary for teachers at that establishment even if that figure is below $684 per week.

Minnesota’s rules set their own, much lower weekly salary minimums for the state executive, administrative, and professional tests: $250 per week under each rule’s first test, and $155 per week for executive and administrative or $170 per week for professional under each rule’s second test. Minn. R. 5200.0190; Minn. R. 5200.0200; Minn. R. 5200.0210. An employer covered by both laws must meet the federal $684 level under 29 C.F.R. § 541.600(a) for any employee claimed exempt under the standard federal salary tests, and the state exemption remains a separate requirement with its own weekly salary minimum and its own duties criteria under Minn. R. 5200.0190, Minn. R. 5200.0200, and Minn. R. 5200.0210. Federal law does not displace a more protective state standard: under 29 U.S.C. § 218(a), no provision of the Act excuses noncompliance with a state law establishing a higher minimum wage or a lower maximum workweek.

For exemptions subject to the standard federal salary level, pay below the $684 weekly figure set by 29 C.F.R. § 541.600(a) defeats the exemption regardless of duties. A position paid above the applicable salary level is potentially exempt, but only if the salary basis rule in 29 C.F.R. § 541.602 and the applicable duties test in 29 C.F.R. § 541.100, § 541.200, or § 541.300 also clear. Outside sales employees sit outside the salary level entirely, because 29 C.F.R. § 541.500(c) removes the salary requirements for them.

Computer employees have two pay routes, and they run through two different statutory exemptions. Under 29 C.F.R. § 541.400(b), the section 13(a)(1) exemption applies to a computer employee “compensated on a salary or fee basis at a rate of not less than $684 per week,” while “[t]he section 13(a)(17) exemption applies to any computer employee compensated on an hourly basis at a rate of not less than $27.63 an hour.” The statute behind that hourly route is 29 U.S.C. § 213(a)(17), which reaches a qualifying computer employee “who, in the case of an employee who is compensated on an hourly basis, is compensated at a rate of not less than $27.63 an hour.” The hourly route is federal only. No clause of Minn. Stat. § 177.23, subd. 7 names computer or software workers, and the state executive tests require a weekly salary, and the state administrative and professional tests a weekly salary or fee (Minn. R. 5200.0190; Minn. R. 5200.0200; Minn. R. 5200.0210), so an hourly-paid computer employee who is exempt under federal law may still fall under Minnesota’s 48-hour overtime rule in Minn. Stat. § 177.25, subd. 1, unless another state exclusion applies.

What does the salary basis test require, and what deductions break it?

Under 29 C.F.R. § 541.602(a), an employee is paid on a salary basis only if the employee “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” Translated to a payroll decision: under 29 C.F.R. § 541.602(a)(1), the exempt employee must receive the full salary in any week the employee performs any work, subject to the exceptions in paragraph (b).

One companion rule catches employers who never intended to dock anyone. Under 29 C.F.R. § 541.602(a)(2), “[a]n employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.” A slow week or an absence you caused is not deductible under § 541.602(a)(2), though under § 541.602(a)(1) an exempt employee need not be paid for a workweek in which the employee performs no work.

The permissible deductions under 29 C.F.R. § 541.602(b) are narrow:

• Absences of one or more full days for personal reasons “other than sickness or disability.” An absence of one and a half days supports a deduction for the one full day only.
• Absences of one or more full days occasioned by sickness or disability, including work-related accidents, where the deduction is made in accordance with a bona fide plan, policy, or practice providing compensation for loss of salary from that sickness or disability. You may deduct for waiting-period days before the employee qualifies under the plan and for days after the employee exhausts the leave allowance, and salary replacement under a state disability insurance or workers’ compensation law also supports the deduction.
• Offsets of jury fees, witness fees, or military pay the employee received for that week against the salary due for that week. You may not deduct for the jury duty, witness, or temporary military leave absence itself.
• Penalties imposed in good faith for infractions of safety rules of major significance.
• Unpaid disciplinary suspensions of one or more full days, imposed in good faith for infractions of workplace conduct rules under a written policy applicable to all employees.
• Proportionate pay for time actually worked in the initial or terminal week of employment.
• Unpaid leave under the Family and Medical Leave Act, which may be deducted in proportion to the time actually missed rather than in full-day units.

The FMLA item has limits of its own. Under 29 C.F.R. § 825.206(a), “providing unpaid FMLA-qualifying leave to such an employee will not cause the employee to lose the FLSA exemption,” and you may deduct for hours of intermittent or reduced-schedule FMLA leave. But under § 825.206(c), the exception “applies only to employees of covered employers who are eligible for FMLA leave, and to leave which qualifies as FMLA leave.” The same subsection gives leave required under state law for a non-FMLA reason as an example of leave you may not dock outside the Part 541 rules. A partial-day salary deduction for Minnesota Paid Leave that is not also FMLA leave, or for leave taken by an employee who is not FMLA-eligible, is therefore not a permitted deduction.

Minnesota’s own salary rule allows full-day deductions on its terms: an employee “may still be salaried even if complete days absent are deducted from salary for reasons other than no work available.” If those deductions take the week’s pay below the state minimum salary, though, “the employer will lose the exemption in that workweek.” Minn. R. 5200.0211, subp. 1.

The regulation also answers the question the list leaves open, which is how much a permitted deduction may be. When calculating a deduction that paragraph (b) already allows, 29 C.F.R. § 541.602(c) lets you use the hourly or daily equivalent of the employee’s full weekly salary or any other amount proportional to the time actually missed by the employee. The major-safety-rule penalty is the one deduction that “may be made in any amount” and is not tied to full days.

Everything outside that list is risky. Docking an exempt employee a half day’s pay because the employee left at noon, deducting for a slow week, or reducing salary because work output was below expectations all break the salary basis rule in 29 C.F.R. § 541.602(a).

What that costs you is governed by a different section, and it is narrower than most employers assume. Under 29 C.F.R. § 541.603, the exemption is lost only where the facts show the employer “did not intend to pay employees on a salary basis,” which an actual practice of improper deductions demonstrates. It is then lost for the period in which the deductions were made and only for “employees in the same job classification working for the same managers responsible for the actual improper deductions”; employees in other classifications or under other managers stay exempt. For that period those employees are nonexempt, so the overtime requirement in 29 U.S.C. § 207(a)(1) applies to them. Two safe harbors matter here. Improper deductions that are “either isolated or inadvertent will not result in loss of the exemption for any employees subject to such improper deductions, if the employer reimburses the employees for such improper deductions.” And an employer with a clearly communicated policy prohibiting improper deductions, a complaint mechanism, reimbursement, and a good-faith commitment to comply keeps the exemption unless it “willfully violates the policy by continuing to make improper deductions after receiving employee complaints.” The regulation says the best evidence of a clearly communicated policy is a written policy distributed to employees before the deductions, in a handbook, at hire, or on the employer’s intranet.

Tracking exempt employees’ hours does not by itself defeat the exemption. The salary basis test turns on whether the predetermined amount is reduced for variations in the quality or quantity of work, not on whether hours are recorded, and the Department of Labor stated in the preamble to the 2004 rule that employers “may require exempt employees to record and track hours” without affecting exempt status. 69 Fed. Reg. 22122, 22178 (Apr. 23, 2004); see Douglas v. Argo-Tech Corp., 113 F.3d 67 (6th Cir. 1997) (persuasive, not binding in Minnesota). The risk arrives when the tracked hours are used to make a deduction 29 C.F.R. § 541.602(b) does not allow, which can cost the exemption under § 541.603.

Can an hourly or day-rate employee be exempt?

For the exemptions that carry a salary requirement, usually not, and the regulations leave two routes. Under federal law, three groups sit outside the salary requirement entirely, so hourly or daily pay never defeats their exemptions. The salary requirements “do not apply to the outside sales employees described in this section” under 29 C.F.R. § 541.500(c), and 29 C.F.R. § 541.303(d) and 29 C.F.R. § 541.304(d) say the same for teachers and for practicing lawyers and physicians, medical interns, and residents. For everyone else, the first route is for computer employees only: 29 C.F.R. § 541.600(d) lets the compensation requirement be met “by compensation on an hourly basis at a rate not less than $27.63 an hour.” The second reaches every exemption that has a salary requirement. Under 29 C.F.R. § 541.604(b), an exempt employee’s earnings “may be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned.” The guarantee must reach the $684 weekly level in § 541.600(a). The reasonable relationship test is met “if the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek.”

A day rate without that guarantee fails, however high it runs. In Helix Energy Solutions Group, Inc. v. Hewitt, 598 U.S. 39, 50 (2023), the Supreme Court held that a toolpusher paid $963 to $1,341 a day, more than $200,000 a year, was not paid on a salary basis and was eligible for overtime pay. The Court explained that “[d]aily-rate workers, of whatever income level, are paid on a salary basis only through the test set out in § 604(b).” The Court applied the same rule to highly compensated employees and named the two ways to fix such a pay plan: add a weekly guarantee that satisfies § 541.604(b), or convert the pay to a straight weekly salary.

Minnesota’s salary rule is strict about form: under Minn. R. 5200.0211, subp. 1, “A salary is not an hourly rate,” and an employee is paid a salary if, through agreement with the employer, the employee is “guaranteed a predetermined wage for each workweek.” Outside the federal computer-employee route, an hourly or daily rate with no weekly guarantee fails the salary-tested exemptions in both systems. Outside sales is the exception in both: the federal exemption has no salary requirement, and Minnesota’s salesperson exclusion in Minn. Stat. § 177.23, subd. 7, clause (6), reaches “a salesperson who conducts no more than 20 percent of sales on the premises of the employer” with no salary condition.

Can you charge an exempt employee’s partial-day absence to PTO or sick leave?

Yes, as long as the salary itself is paid in full, because a deduction from a paid leave bank is not a deduction from salary. When the Department of Labor adopted the current rules, it agreed that employers, “without affecting their employees’ exempt status, may take deductions from accrued leave accounts.” 69 Fed. Reg. 22122, 22178 (Apr. 23, 2004). The Eighth Circuit, whose decisions bind the federal courts in Minnesota, reversed a summary judgment for employees whose short weeks had been charged to their vacation or sick banks. The court treated that payroll practice as consistent on its face with the salary basis rule, as long as the predetermined salary was not reduced in actual practice. Coates v. Dassault Falcon Jet Corp., 961 F.3d 1039 (8th Cir. 2020). The Third Circuit held it directly: “PTO is not part of an employee’s salary,” because “when an employer docks an employee’s PTO, but not her base pay, the predetermined amount that the employee receives at the end of a pay period does not change.” Higgins v. Bayada Home Health Care Inc., 62 F.4th 755 (3d Cir. 2023) (persuasive, not binding in Minnesota).

The condition is the one employers forget. Once the bank is empty, the full-salary rule in 29 C.F.R. § 541.602(a)(1) controls again: an employee who works any part of a week gets the full salary. A partial-day absence with nothing left to charge is therefore paid, unless an exception in § 541.602(b), such as unpaid FMLA leave, applies. For a full-day absence the bank covers only in part, the Department of Labor’s position is that you “may make a deduction from the employee’s pay for any portion of the full-day absences that is not accounted for by the leave bank.” U.S. Dep’t of Labor, Wage & Hour Div., Opinion Letter FLSA2018-14 (Jan. 5, 2018) (agency guidance, not law).

Minnesota adds two limits of its own. Earned sick and safe time “may be used in the same increment of time for which employees are paid, provided an employer is not required to provide leave in less than 15-minute increments nor can the employer require use of earned sick and safe time in more than four-hour increments.” Minn. Stat. § 181.9447, subd. 5. The same increment rule reaches paid time off you provide beyond the sick-time minimum for absences due to personal illness or injury. Under Minn. Stat. § 181.9448, subd. 1, that leave must “meet or exceed the minimum standards and requirements” of the sick-time law. A policy that charges a two-hour sick absence as a full day against the bank therefore violates the state increment rule even though it leaves the federal salary basis intact. Minnesota Paid Leave, for its part, frames the substitution as the employee’s option: an employee “may use vacation pay, sick pay, or paid time off pay in lieu of family or medical leave program benefits,” provided the employee is concurrently eligible. Minn. Stat. § 268B.06, subd. 5.

Can exempt employees receive overtime pay, bonuses, or commissions?

Yes. You may pay an exempt employee more than the salary, including pay for extra hours, without losing the exemption. Under 29 C.F.R. § 541.604(a), “An employer may provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly-required amount paid on a salary basis.” The regulation’s examples are a commission on sales, a share of the employer’s sales or profits, and pay for hours beyond the normal workweek. It adds that “[s]uch additional compensation may be paid on any basis (e.g., flat sum, bonus payment, straight-time hourly amount, time and one-half or any other basis), and may include paid time off.” Voluntary overtime pay for an exempt employee, even at time and one-half, keeps the exemption as long as the weekly salary guarantee stays in place.

One limit applies when the pay itself is computed by the hour, day, or shift. 29 C.F.R. § 541.604(b) then requires a reasonable relationship between the guarantee and the employee’s usual earnings. Its example is an employee “guaranteed compensation of at least $725 for any week in which the employee performs any work, and who normally works four or five shifts each week,” who “may be paid $210 per shift without violating the $684-per-week salary basis requirement.” Salary-plus-commission pay is outside that limit: the requirement “does not apply, for example, to an exempt store manager paid a guaranteed salary per week that exceeds the current salary level who also receives a commission of one-half percent of all sales in the store or five percent of the store’s profits, which in some weeks may total as much as, or even more than, the guaranteed salary.”

Nondiscretionary bonuses, incentives, and commissions paid at least annually can also cover up to 10% of the $684 salary level itself, except under the highly compensated employee test, as the salary threshold section above explains. An employee you treat as exempt can still be owed overtime in three situations covered elsewhere on this page. The classification can fail; an actual practice of improper deductions can cost the exemption for a period; or a federally exempt hourly computer employee can fall outside Minnesota’s exclusion and work more than 48 hours in a week.

What does the executive exemption cover?

The executive exemption under 29 C.F.R. § 541.100 requires four elements, each of which must be present:

1. Compensation on a salary basis at not less than the level in § 541.600 (currently $684 per week).
2. Primary duty is “management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof.”
3. The employee “customarily and regularly directs the work of two or more other employees.”
4. The employee “has the authority to hire or fire other employees,” or the employee’s “suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.”

Element three carries a defined term. Under 29 C.F.R. § 541.701, “customarily and regularly” means “a frequency that must be greater than occasional but which, of course, may be less than constant,” covering work normally and recurrently performed every workweek and excluding isolated or one-time tasks.

“Primary duty” is the test most often misread. Under 29 C.F.R. § 541.700, it is “the principal, main, major or most important duty that the employee performs,” determined on all the facts “with the major emphasis on the character of the employee’s job as a whole.” The regulation’s four factors are the relative importance of the exempt duties compared with other duties, the amount of time spent on exempt work, the employee’s relative freedom from direct supervision, and the relationship between the employee’s salary and the wages paid to others for the same nonexempt work. Time is a guide and not the test: employees who spend more than 50 percent of their time on exempt work “will generally satisfy the primary duty requirement,” but “nothing in this section requires that exempt employees spend more than 50 percent of their time performing exempt work,” and an employee below that line can still qualify when the other factors support it.

The regulation supplies its own worked example, and both halves of it matter. Assistant managers who supervise and direct other employees, order merchandise, manage the budget, and authorize payment of bills “may have management as their primary duty even if the assistant managers spend more than 50 percent of the time performing nonexempt work such as running the cash register.” But “if such assistant managers are closely supervised and earn little more than the nonexempt employees, the assistant managers generally would not satisfy the primary duty requirement.” 29 C.F.R. § 541.106 says the same thing about mixed work directly: an assistant manager may serve customers, cook, stock shelves, and clean without losing the exemption if management is the primary duty, and “can supervise employees and serve customers at the same time without losing the exemption.”

Minnesota is stricter on exactly this fact pattern, and it is where a federal-only analysis gets an employer into trouble. Executive Test II under Minn. R. 5200.0190, subp. 2, requires that the employee devote “less than 20 percent of time worked, or 40 percent in retail or service establishments, to nonexempt work” unless the employee owns 20 percent or more of the business or has sole charge of an independent or branch establishment. Executive Test I under Minn. R. 5200.0190, subp. 1, has no percentage cap but requires that the employee “manage” the enterprise, which Minn. R. 5200.0180, subp. 2, defines as controlling and directing the business operations of the enterprise, department, or branch through decisions and directions to other employees that involve skill and judgment; the rule adds that the term “includes those employees that act primarily and principally in a directive capacity as opposed to those who primarily do the actual work.” A working supervisor who spends 70 percent of the week on the line but holds real hiring, firing, scheduling, and discipline authority can therefore meet the federal primary-duty test and still fail Executive Test II under Minn. R. 5200.0190, subp. 2. Executive Test I sets out three requirements and no percentage cap: a salary of at least $250 per week, managing the enterprise or a recognized department or subdivision thereof, and customarily directing the work of two or more other employees. Minn. R. 5200.0190, subp. 1. Test I still requires the employee to “manage,” and Minn. R. 5200.0180, subp. 2, reaches “those employees that act primarily and principally in a directive capacity as opposed to those who primarily do the actual work,” so a supervisor who spends most of the week on the line usually fails Test I as well. Test I does its work for the supervisor whose nonexempt hours exceed the Test II cap but who is paid at least $250 per week, customarily directs the work of two or more other employees, and still manages the department. Minn. R. 5200.0190, subp. 1. Where neither state test is met, the employee falls outside Minnesota’s executive exclusion in Minn. Stat. § 177.23, subd. 7(6), which leaves the employer owing Minnesota overtime after 48 hours under Minn. Stat. § 177.25, subd. 1. A “shift lead” who simply runs the same line as everyone else without meaningful management authority fails the federal executive test in 29 C.F.R. § 541.100 and the Minnesota executive tests in Minn. R. 5200.0190, no matter how managerial the title sounds, because under 29 C.F.R. § 541.2 a job title alone cannot establish exempt status. 29 C.F.R. § 541.2; 29 C.F.R. § 541.100; Minn. R. 5200.0190.

How does the duties test apply to retail managers?

Store managers often run registers and stock shelves alongside the crew, and the regulations’ mixed-duty examples quoted above are retail assistant managers. The working question for a store manager comes from 29 C.F.R. § 541.106(a). Exempt executives generally “make the decision regarding when to perform nonexempt duties and remain responsible for the success or failure of business operations under their management while performing the nonexempt work,” while a nonexempt employee “generally is directed by a supervisor to perform the exempt work or performs the exempt work for defined time periods.” The statute also gives retail managers a specific protection on time: an employee of a retail or service establishment is not excluded from the executive or administrative exemption “because of the number of hours in his workweek which he devotes to activities not directly or closely related to the performance of executive or administrative activities, if less than 40 per centum of his hours worked in the workweek are devoted to such activities.” 29 U.S.C. § 213(a)(1). The regulations require no fixed share of exempt time at all, as the primary-duty discussion above explains.

Three federal exemptions come up for retail managers. The executive exemption is the usual fit, judged on its four elements and the assistant-manager example above. The administrative exemption is a harder fit for a store manager, because 29 C.F.R. § 541.201(a) contrasts administrative work with “selling a product in a retail or service establishment.” It can still reach a merchandise buyer, since purchasing and procurement are among the functional areas § 541.201(b) lists. The highly compensated employee test, covered below, can reach a manager earning at least $107,432 a year who customarily and regularly performs at least one exempt duty, but it never applies on pay alone.

Minnesota builds retail into its own tests. Administrative Test II requires that nonexempt work take less than 40% of time worked in a retail or service establishment, against 20% elsewhere. Executive Test II has the same limit unless the employee owns 20% or more of the business or has sole charge of an establishment. Minn. R. 5200.0200, subp. 2; Minn. R. 5200.0190, subp. 2. The sole-charge route belongs to one person per store: under Minn. R. 5200.0180, subp. 4, “Only one employee per enterprise, department, or branch establishment may be considered to be in sole charge regardless of the number of work shifts per day.” An assistant manager who spends half the week on nonexempt work can therefore meet the federal primary-duty test and still fail Executive Test II. That leaves Executive Test I, which requires that the assistant manager actually manage the store or a recognized department of it.

What does the administrative exemption cover?

The administrative exemption under 29 C.F.R. § 541.200 is the hardest of the three to apply correctly and the source of most close-call litigation. It requires:

1. Salary or fee basis at the § 541.600 level. Administrative employees may satisfy the compensation element on a fee basis as well as a salary basis. 29 C.F.R. § 541.200(a)(1); 29 C.F.R. § 541.605.
2. Primary duty is “the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.”
3. Primary duty includes “the exercise of discretion and independent judgment with respect to matters of significance.”

“Directly related to management or general business operations” means “work directly related to assisting with the running or servicing of the business,” which 29 C.F.R. § 541.201(a) distinguishes, “for example,” from “working on a manufacturing production line or selling a product in a retail or service establishment.” The regulation then lists the functional areas it covers, and the list is long: tax, finance, accounting, budgeting, auditing, insurance, quality control, purchasing, procurement, advertising, marketing, research, safety and health, personnel management, human resources, employee benefits, labor relations, public relations, government relations, computer network, internet and database administration, and legal and regulatory compliance. The regulation says the list is not exhaustive.

The phrase “or the employer’s customers” does real work for service firms. Under 29 C.F.R. § 541.201(c), an employee may qualify where the primary duty serves the management or general business operations of the employer’s clients, so “employees acting as advisers or consultants to their employer’s clients or customers (as tax experts or financial consultants, for example) may be exempt.”

The regulations single out some occupations. Insurance claims adjusters generally meet the administrative duties test when they interview insureds, witnesses, and physicians, inspect property damage, evaluate coverage, determine liability and total value of a claim, and negotiate settlements. 29 C.F.R. § 541.203(a). An intake role that only applies a published rubric to incoming claims does none of that, which is why the title alone does not decide it, and a benefits manager who designs the plan and resolves escalated coverage disputes is on the other side of the line.

What counts as discretion and independent judgment?

“Discretion and independent judgment with respect to matters of significance,” the element 29 C.F.R. § 541.200(a)(3) requires, is the second wall. The employee must compare and evaluate possible courses of conduct, then act or decide after considering the possibilities. 29 C.F.R. § 541.202 gives you the factors to weigh, including whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices, whether the employee can commit the employer in matters of significant financial impact, and whether the employee can waive or deviate from established policies and procedures without prior approval.

Two common misreadings run in opposite directions. Following a detailed decision tree or applying well-established procedures, even at high skill, is not discretion in this sense: the regulation requires “more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources.” On the other side, review from above does not defeat the element. Employees “can exercise discretion and independent judgment even if their decisions or recommendations are reviewed at a higher level,” and the decisions “may consist of recommendations for action rather than the actual taking of action.” A third argument fails outright: a role does not involve matters of significance “merely because the employer will experience financial losses if the employee fails to perform the job properly.” The regulation’s own examples are a messenger entrusted with large sums and an operator of expensive equipment.

That is the federal standard, and Minnesota’s differs. Administrative Test I requires that the employee “regularly exercises discretion or independent judgment,” and Administrative Test II that the employee “regularly exercises discretion and independent judgment and makes important decisions.” Minn. R. 5200.0200. Minnesota’s rule on discretionary powers draws the line between “those employees empowered to independently commit their employers on matters of importance and those employees who merely make day-to-day decisions which, although necessary to the daily operations of the employer’s business, are routine, or follow prescribed procedures, or involve a determination of whether specific standards are met, or are lacking in substantial importance to the employer’s business as a whole.” Minn. R. 5200.0180, subp. 3. On recommendations the state rule is narrower than the federal one: “Mere recommendations with respect to policies and procedures are not sufficient unless it can be shown that the employer consistently accepted and followed those recommendations.” A role built on recommending rather than deciding needs evidence that its recommendations were consistently followed before you rely on the Minnesota exclusion.

The same Minnesota rule limits what counts as exempt support work. Work “directly related to executive or administrative work may be included if the executive work which it relates to is actually performed by the employee,” and “It is not sufficient to claim certain work is exempt where the executive or administrative function it might be directly related to is not performed by the employee.” Minn. R. 5200.0180, subp. 5. Its one-person limit on the sole-charge route, subpart 4, is covered under retail managers above.

Professionals face a different judgment standard. Federal law describes learned professional work as “predominantly intellectual in character, and which includes work requiring the consistent exercise of discretion and judgment, as distinguished from performance of routine mental, manual, mechanical or physical work.” 29 C.F.R. § 541.301(b). The creative professional test turns instead on “invention, imagination, originality or talent” in work that cannot be “produced by a person with general manual or intellectual ability and training.” 29 C.F.R. § 541.302(a). Minnesota’s professional tests each require that the employee consistently exercise discretion and judgment. Minn. R. 5200.0210.

What do the professional, computer, and outside-sales exemptions cover?

Three additional exemptions cover narrower populations.

The learned and creative professional exemption under 29 C.F.R. § 541.300 requires either knowledge “of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction,” or “invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.” Registered nurses registered by the appropriate state examining board, and certified public accountants, generally meet the learned professional duties requirements. 29 C.F.R. § 541.301(e)(2), (e)(5). Law, medicine, accounting, engineering, architecture, and the physical, chemical, and biological sciences are fields of science or learning under 29 C.F.R. § 541.301(c), which is one element of the test rather than the whole of it, so exemption still turns on the employee’s actual primary duty; lawyers and physicians are governed by 29 C.F.R. § 541.304, which reaches an employee holding “a valid license or certificate permitting the practice of law or medicine” who is “actually engaged in the practice thereof.” Journalists and graphic designers are judged case by case under the creative professional rule, and a reporter who only collects, organizes, and records information that is routine or already public, or whose work product is subject to substantial employer control, does not qualify. 29 C.F.R. § 541.302. The regulation is equally explicit about who does not: licensed practical nurses and similar health care employees generally do not qualify “because possession of a specialized advanced academic degree is not a standard prerequisite for entry into such occupations,” accounting clerks and bookkeepers who perform a great deal of routine work generally do not, and “[p]aralegals and legal assistants generally do not qualify as exempt learned professionals because an advanced specialized academic degree is not a standard prerequisite for entry into the field.” 29 C.F.R. § 541.301.

The degree itself is evidence rather than the test. Under 29 C.F.R. § 541.301(d), “[t]he best prima facie evidence that an employee meets this requirement is possession of the appropriate academic degree,” but the exemption also reaches employees “who have substantially the same knowledge level and perform substantially the same work as the degreed employees, but who attained the advanced knowledge through a combination of work experience and intellectual instruction.”

Under 29 C.F.R. § 541.400(a), computer systems analysts, computer programmers, software engineers, and other similarly skilled workers in the computer field are eligible for the computer employee exemption, and § 541.400(b) conditions it on both a compensation requirement and a primary-duty requirement, so pay alone never creates it. Under 29 C.F.R. § 541.400, and under either section 13(a)(1) or section 13(a)(17), the employee’s primary duty must consist of systems analysis to determine hardware, software, or system functional specifications; the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs based on user or system design specifications; the design, documentation, testing, creation, or modification of programs related to machine operating systems; or a combination requiring the same skills. The regulation adds that “[b]ecause job titles vary widely and change quickly in the computer industry, job titles are not determinative of the applicability of this exemption.”

The exemption reaches only employees whose primary duty consists of the systems-analysis, design, and programming work listed in 29 C.F.R. § 541.400(b), and that same list governs under either section 13(a)(1) or section 13(a)(17), so duties outside the list do not qualify however the employee is paid. 29 C.F.R. § 541.401 says the exemption “does not include employees engaged in the manufacture or repair of computer hardware and related equipment,” and also excludes employees whose work is highly dependent on computers but who are “not primarily engaged in computer systems analysis and programming or other similarly skilled computer-related occupations identified in § 541.400(b).” The Department of Labor reached the same conclusion for an IT support specialist position in Opinion Letter FLSA2006-42 (Oct. 26, 2006), which is agency guidance rather than law, resting on the ground that the position’s primary duty did not consist of the duties listed in 29 C.F.R. § 541.400(b)(1)-(4), and the Sixth Circuit reached the same result in Martin v. Indiana Michigan Power Co., 381 F.3d 574 (6th Cir. 2004), which is persuasive rather than binding in Minnesota.

The outside sales exemption under 29 C.F.R. § 541.500 has two required elements: a primary duty of “making sales within the meaning of section 3(k) of the Act, or . . . obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer,” and being “customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.” It carries no salary-level requirement, because 29 C.F.R. § 541.500(c) provides that the subpart G salary requirements “do not apply to the outside sales employees described in this section,” so the duties and location elements are the whole test.

The location element is strict, and the regulation says why. Under 29 C.F.R. § 541.502, outside sales “does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls,” and “any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business.” A salesperson whose selling happens by telephone from a fixed site therefore does not qualify as an outside sales employee, though another exemption may still reach the position. 29 C.F.R. § 541.502. Travel does not cut the other way, though: a salesperson does not lose the exemption by displaying samples in hotel sample rooms between cities or by selling at a trade show of one or two weeks.

Non-selling tasks tied to the employee’s own sales still count as exempt work. Under 29 C.F.R. § 541.500(b), incidental deliveries and collections count, and so does other work that furthers the employee’s sales efforts, “including, for example, writing sales reports, updating or revising the employee’s sales or display catalogue, planning itineraries and attending sales conferences.”

Minnesota uses a different formulation under Minn. Stat. § 177.23, subd. 7(6), which excludes from the definition of “employee” “a salesperson who conducts no more than 20 percent of sales on the premises of the employer.” A salesperson can satisfy one test and not the other, so analyze the two separately rather than treating them as interchangeable.

How does the highly compensated employee exemption work?

Federal law gives high earners an easier duties test. Under 29 C.F.R. § 541.601(a)(1), “Beginning on January 1, 2020, an employee with total annual compensation of at least $107,432 is deemed exempt under section 13(a)(1) of the Act if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee as identified in subparts B, C or D of this part.” The $107,432 level replaced the 2004 rule’s $100,000, and the 2024 rule’s $132,964 and $151,164 levels were vacated and removed from the regulations effective May 15, 2026. 91 Fed. Reg. 27833, 27834 (May 15, 2026).

High pay relaxes the duties test without removing it. The Eighth Circuit describes this test as “a less burdensome way to prove an executive, administrative, or professional exemption, not a separate exemption.” Coates v. Dassault Falcon Jet Corp., 961 F.3d 1039 (8th Cir. 2020). The employee must still customarily and regularly perform at least one exempt duty, such as directing the work of two or more other employees, though the employee need not meet every other element of the executive test. 29 C.F.R. § 541.601(c). For a retail store manager, that means pay alone never makes the position exempt.

The pay side carries conditions of its own:

• Total annual compensation “must include at least $684 per week paid on a salary or fee basis” and may include commissions, nondiscretionary bonuses, and other nondiscretionary compensation earned during a 52-week period. It “does not include board, lodging and other facilities as defined in § 541.606, and does not include payments for medical insurance, payments for life insurance, contributions to retirement plans and the cost of other fringe benefits.” 29 C.F.R. § 541.601(b)(1).
• If the total falls short by the last pay period, you may make “one final payment sufficient to achieve the required level” during the last pay period or within one month after the 52-week period ends. A payment made after the period counts only toward the prior year. 29 C.F.R. § 541.601(b)(2).
• An employee hired after the year begins, or who leaves before it ends, qualifies on “a pro rata portion” of the threshold based on the weeks employed. 29 C.F.R. § 541.601(b)(3).
• You may use any 52-week period, such as a calendar, fiscal, or anniversary year, and the calendar year applies if you do not pick one in advance. 29 C.F.R. § 541.601(b)(4).
• The salary basis rules apply, including the day-rate rule from Helix Energy Solutions Group, Inc. v. Hewitt, 598 U.S. 39 (2023), discussed above, with one exception: § 541.601(b)(1) provides that § 541.602(a)(3) “shall not apply to highly compensated employees.” The ten percent bonus credit toward the weekly salary is therefore unavailable, so the full $684 a week must be paid as salary or fee, and bonuses and commissions count only toward the rest of the annual total.

Two limits catch employers. The test “applies only to employees whose primary duty includes performing office or non-manual work,” so non-management production, maintenance, and construction workers “are not exempt under this section no matter how highly paid they might be.” 29 C.F.R. § 541.601(d). And Minnesota has no counterpart: neither Minn. Stat. § 177.23, subd. 7, nor the state tests in Minn. R. 5200.0190 to 5200.0210 contains a highly compensated version of the executive, administrative, and professional exclusion. A high earner who is exempt federally under this test must still meet a full Minnesota test, or Minnesota’s 48-hour overtime rule in Minn. Stat. § 177.25, subd. 1, applies.

Are blue-collar workers and first responders ever exempt?

Not under the white-collar exemptions, however much they earn. The exemptions “do not apply to manual laborers or other ‘blue collar’ workers who perform work involving repetitive operations with their hands, physical skill and energy,” and the regulation names the trades: “non-management production-line employees and non-management employees in maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers and laborers are entitled to minimum wage and overtime premium pay under the Fair Labor Standards Act, and are not exempt under the regulations in this part no matter how highly paid they might be.” 29 C.F.R. § 541.3(a). The rule reaches only non-management employees, so a construction manager is judged under the ordinary executive test rather than excluded by this section.

First responders get the same treatment. The regulation lists police officers, detectives, deputy sheriffs, state troopers, highway patrol officers, investigators, inspectors, correctional officers, parole or probation officers, park rangers, firefighters, paramedics, emergency medical technicians, ambulance personnel, rescue workers, and hazardous materials workers. Under 29 C.F.R. § 541.3(b)(1), they and similar employees are outside the white-collar exemptions “regardless of rank or pay level” when they perform work such as fighting fires, rescuing victims, preventing or detecting crimes, conducting investigations, and apprehending suspects. Directing others in the field does not change that: an officer or firefighter “whose primary duty is to investigate crimes or fight fires is not exempt under section 13(a)(1) of the Act merely because the police officer or fire fighter also directs the work of other employees in the conduct of an investigation or fighting a fire.” 29 C.F.R. § 541.3(b)(2).

These are limits on the white-collar exemptions only. Other rules can still reach public-safety employees, such as the federal overtime exemption for small public fire and police agencies in 29 U.S.C. § 213(b)(20). Minnesota also excludes political-subdivision police and fire protection employees under Minn. Stat. § 177.23, subd. 7, clause (9). The 48-hour section below discusses both.

How does Minnesota’s 48-hour overtime rule interact with the federal 40-hour rule?

This is the single most-overlooked Minnesota wrinkle. Minn. Stat. § 177.25, subd. 1 provides: “No employer may employ an employee for a workweek longer than 48 hours, unless the employee receives compensation for employment in excess of 48 hours in a workweek at a rate of at least 1-1/2 times the regular rate at which the employee is employed.” That is a 48-hour state threshold, not 40.

The Fair Labor Standards Act sets the federal threshold at 40 hours under 29 U.S.C. § 207(a)(1). Where both laws apply to a nonexempt employee, you comply with both, and the mechanism is a floor rather than a ceiling: “[n]o provision of this chapter . . . shall excuse noncompliance with any Federal or State law . . . establishing a minimum wage higher than the minimum wage established under this chapter or a maximum work week lower than the maximum workweek established under this chapter.” 29 U.S.C. § 218(a); see also 29 C.F.R. § 541.4 and 29 C.F.R. § 778.5. An employee covered by both is entitled to overtime after 40 hours because 29 U.S.C. § 207(a)(1) independently requires it, and § 218(a) confirms that Minnesota’s separate standard is not displaced.

Most Minnesota employers are covered. Enterprise coverage under 29 U.S.C. § 203(s)(1) reaches an enterprise with employees handling, selling, or otherwise working on goods or materials that have moved in commerce and with annual gross volume of sales made or business done “not less than $500,000,” and the test is met at $500,000, not only above it.

The state rule still matters in two situations. First, where an employer falls outside enterprise coverage under 29 U.S.C. § 203(s)(1) and its workers are not individually covered under 29 U.S.C. § 207(a)(1), state law alone applies and the threshold is the 48 hours set by Minn. Stat. § 177.25, subd. 1, subject to that section’s own exceptions.

Second, the two exemption lists are scoped differently, and a few Minnesota exclusions have no federal counterpart at all. Taxicab drivers and individuals in positions subject to United States Department of Transportation qualification and hours-of-service authority fall outside state minimum wage and overtime protection entirely, while the parallel federal exemptions in 29 U.S.C. § 213(b)(17) and (b)(1) reach overtime only. Minnesota’s seasonal carnival, circus, fair, and ski-facility exclusion applies only to overtime under § 177.25, while the federal seasonal amusement or recreational establishment exemption in 29 U.S.C. § 213(a)(3) reaches both minimum wage and overtime but turns on a seven-month or receipts test. Minnesota also excludes political-subdivision police and fire protection employees and state conservation officers outright under Minn. Stat. § 177.23, subd. 7, clauses (9) and (15), while 29 U.S.C. § 213(b)(20) exempts public-safety employees from overtime only where the agency employs fewer than five of them in fire protection or law enforcement activities. Each category takes separate state and federal analysis.

Several more rules sit inside the Minnesota overtime section itself rather than in the exclusion list, and three come up most often. The state and its political subdivisions may grant compensatory time at 1-1/2 hours per overtime hour in place of pay. A health care facility may use an agreed 14-day, 80-hour work period, with overtime after eight hours in a workday, if the employer and employee agree before the work is performed. And commissioned salespeople, parts persons, and mechanics at vehicle and farm-implement dealerships are outside the 48-hour rule. Minn. Stat. § 177.25, subds. 1, 2, 3. The section also carries narrower exceptions for employees under a section 7(b)(2) agreement, sugar beet hand laborers paid on a piece rate, on-farm silo construction, and certain air carrier employees. Minn. Stat. § 177.25, subds. 1 to 5.

For most employers, the practical rule remains: pay nonexempt employees at least 1.5 times the regular rate for all hours over 40 in a workweek. 29 U.S.C. § 207(a)(1).

What does the Minnesota Fair Labor Standards Act require beyond the federal FLSA?

Minnesota reaches exemption by a different route. Its Fair Labor Standards Act does not write an exemption into the overtime section; it defines “employee” to exclude “any individual employed in a bona fide executive, administrative, or professional capacity, or a salesperson who conducts no more than 20 percent of sales on the premises of the employer.” Minn. Stat. § 177.23, subd. 7, clause (6). Because the state minimum wage duty in Minn. Stat. § 177.24 and the overtime duty in Minn. Stat. § 177.25 run only to an “employee,” an individual within that clause falls outside both.

The state criteria are not the federal ones. Minnesota’s executive, administrative, and professional tests keep a two-test structure with weekly salary floors from $155 to $250 (Minn. R. 5200.0190; Minn. R. 5200.0200; Minn. R. 5200.0210), while federal law requires at least $684 per week under 29 C.F.R. § 541.600(a). If both laws cover you, you must satisfy each, and the federal regulation says so directly: “Employers must comply, for example, with any Federal, State or municipal laws, regulations or ordinances establishing a higher minimum wage or lower maximum workweek than those established under the Act.” 29 C.F.R. § 541.4.

Minnesota wage law overlays the FLSA in several ways that affect exempt and nonexempt populations both. Minn. Stat. § 177.23, subd. 7 lists nineteen categories of individuals excluded from “employee” status, including the executive, administrative, and professional exclusion, the salesperson exclusion with its 20-percent-on-premises cap, certain agricultural workers paid above a stated salary formula, taxicab drivers, seasonal workers in carnivals, circuses, fairs, and ski facilities (for § 177.25 overtime purposes only), individuals in positions for which the Department of Transportation may set qualifications and maximum hours of service, and members of religious orders serving in church-operated schools, hospitals, and other nonprofit institutions. Two clauses are scoped to a single section; the rest remove the individual from the Act’s definition of “employee” altogether.

Two more subdivisions reach an exemption-like result by narrowing what counts as working time. For a resident caretaker, manager, or other on-site employee of a residential building, “hours worked” does not include time when the employee is on the premises and “available to perform duties of employment and is not performing duties of employment.” Minn. Stat. § 177.23, subd. 10. Subdivision 11 covers an overnight companionship caregiver paid at least the minimum wage for at least four hours associated with the overnight stay. Up to eight nighttime hours between 10:00 p.m. and 9:00 a.m. are excluded from “hours” when the caregiver is available but not performing duties and is free to sleep. Minn. Stat. § 177.23, subd. 11. The firm’s comparison of federal and Minnesota wage and hour rules for home health workers covers that caregiver setting.

Minnesota also requires you to put the classification decision in writing and hand it to the employee. Under Minn. Stat. § 181.032, the written notice you give at the start of employment must state “the employee’s employment status and whether the employee is exempt from minimum wage, overtime, and other provisions of chapter 177, and on what basis,” you must give written notice of any change before it takes effect, and you keep a copy signed by the employee. That makes a reclassification a disclosed event rather than a quiet payroll change. The same statute governs the earnings statement, which omits the hours-worked line only for an employee exempt from chapter 177 and, effective January 1, 2026, must also show the Paid Leave premium deducted and the employer’s share.

The Earned Sick and Safe Time law’s definition of a covered employee does not turn on exempt or nonexempt status. Minn. Stat. § 181.9445, subd. 5. Coverage turns on anticipated hours rather than exempt status: under Minn. Stat. § 181.9445, subd. 5, a covered employee is any person the employer anticipates will perform at least 80 hours of work in a year in Minnesota, and the four exclusions (independent contractors, volunteer and paid on-call firefighters and ambulance personnel, elected officials, and short-term farm labor of 28 days or less) turn on engagement type. For accrual, Minn. Stat. § 181.9446 deems employees exempt from overtime under 29 U.S.C. § 213(a)(1) to work 40 hours in each workweek, or their normal workweek if shorter. Accrual runs at a minimum of one hour for every 30 hours worked, up to 48 hours in a year, and accrued but unused time is capped at 80 hours at any time, unless the employer agrees to a higher amount. Minn. Stat. § 181.9446. For a salaried employee, Minn. Stat. § 181.9445, subd. 4a, sets the base rate at “the same rate guaranteed to the employee as if the employee had not taken the leave,” and excludes commissions, shift differentials that are in addition to an hourly rate, premium payments for overtime work or for work on Saturdays, Sundays, holidays, or scheduled days off, bonuses, and gratuities.

Earned Sick and Safe Time coverage does not turn on classification, but the wage notice, the earnings statement, and the accrual rule all key off it, and all of them surface in the same audit that uncovers a misclassification, which is why a clean classification analysis usually pairs with a payroll-policy review.

For broader compliance context, see the firm’s Minnesota FLSA compliance guide for employers, 2025 Minnesota employer legal updates, and employee handbook requirements by state. Employee-versus-contractor classification raises a parallel set of duties analyses; the firm’s sample independent contractor agreement template walks through the contractor-side counterpart.

What are the risks in reclassifying employees as exempt or nonexempt?

Reclassification runs in two directions, and each carries its own risk. Moving an exempt employee to nonexempt stops new liability from accruing. Overtime already owed stays owed for the limitations period described in the next section, so a prospective fix should come with a decision about back wages. Moving a nonexempt employee to exempt, often at a promotion, takes the same salary, salary basis, and duties analysis as a new hire. Under 29 C.F.R. § 541.2, status follows the job’s actual pay and duties rather than its title. The way to avoid a forced reclassification later is to run that analysis before the change takes effect.

Minnesota makes either change a written event. You must give the employee written notice of the change before it takes effect under Minn. Stat. § 181.032, paragraph (f). Paragraph (e) of the same statute requires you to keep a copy of the original notice signed by the employee, and Minn. Stat. § 177.30, paragraph (a)(5), lists the notice and its written changes among the records you keep for three years. A classification can change as often as the job does; what each change needs is a real change in the job’s pay or duties and its own written notice. I suggest reviewing each exempt position at least once a year and whenever its duties or pay change, because duties shift over time while the classification on file stays the same.

Expect the employee to read the change as a change in pay, because it is one. A move to exempt ends overtime pay and often raises expected hours; a move to nonexempt adds timekeeping and can feel like a demotion even when the hourly rate keeps annual pay level. I suggest explaining the change in writing before the first changed paycheck, covering what changes, why, how pay and hours will work, and what stays the same. When a move to exempt removes regular overtime income, I suggest setting the new salary with that income in view, because an employee who reads the change as a pay cut has a reason to look elsewhere.

Health insurance and other benefits follow the plan’s own terms, which usually turn on hours or full-time status rather than overtime classification. The federal employer coverage rule applies to an employer that had an average of at least 50 full-time employees, counting full-time equivalents, in the preceding calendar year. For that rule, a full-time employee is one “employed on average at least 30 hours of service per week,” and the statute directs rules for counting hours of service for employees who are not paid by the hour. 26 U.S.C. § 4980H(c)(2), (c)(4). In practice, a reclassification changes plan benefits where a plan document ties eligibility or contributions to exempt status, or where the change alters hours or pay, so the plan language is worth reading before the change takes effect. Minnesota’s sick-time accrual rule is one place where exempt status matters directly, as the Minnesota section above explains.

Recordkeeping follows both systems. For a properly classified exempt employee, federal rules require the payroll items in 29 C.F.R. § 516.2(a) except paragraphs (a)(6) through (10), which cover the regular rate, hours, straight-time and overtime earnings, and additions and deductions. You must also record the basis of pay in enough detail to calculate total pay for each pay period, including fringe benefits. 29 C.F.R. § 516.3. Minnesota requires hours records for every employee its wage law covers under Minn. Stat. § 177.30, paragraph (a)(3), so when a classification fails, the missing hours records become a separate violation, as the Milner decision in the next section shows. Tracking an exempt employee’s hours does not by itself defeat the exemption, as the salary basis section explains, so keeping those records costs the exemption nothing.

What does an employer owe for misclassification?

The exposure for treating a nonexempt employee as exempt has four layers.

One qualification frames all of them. Under Minnesota law, the label alone is not the violation: in Milner v. Farmers Insurance Exchange, 748 N.W.2d 608 (Minn. 2008), the Minnesota Supreme Court held that “[a]n employer’s act of misclassifying an employee, without more, does not constitute a violation of the MFLSA.” Liability attaches to overtime actually worked and unpaid under Minn. Stat. § 177.25, subd. 1, and a failure to keep the required hours records carries its own commissioner-imposed fine under Minn. Stat. § 177.30. In Milner the jury found misclassification but awarded no unpaid overtime, so no back pay or liquidated damages followed. The same decision holds that the failure to make and keep the required wage and hour records is a violation, and that a court may order an injunction, civil penalties payable to the state, and attorney fees on that violation alone. In Milner the employer that owed no overtime was still ordered to pay $376,000 in civil penalties and $1.8 million in attorney fees, which the supreme court remanded for recalculation. That matters because the employer who treats a job as exempt usually keeps no hours records for it.

Unpaid overtime. The employee is owed the unpaid overtime for all hours actually worked over the applicable threshold, at 1.5 times the regular rate, for the period the limitations statutes leave open, less any amount you can establish was actually paid, which Minn. Stat. § 177.27, subd. 8, expressly allows. Minn. Stat. § 177.25, subd. 1; 29 U.S.C. § 207(a)(1); Minn. Stat. § 177.27, subd. 8; 29 U.S.C. § 255(a); Minn. Stat. § 541.07(5). The “regular rate” under 29 U.S.C. § 207(e) includes all remuneration except the listed exclusions, so nondiscretionary bonuses, commissions, and shift differentials count, not just base pay, which often pushes the recovery higher than employers expect. The other side is worth knowing too: 29 U.S.C. § 207(e)(2) excludes pay for vacation, holidays, and illness and reasonable reimbursement of expenses incurred in furtherance of the employer’s interests, § 207(e)(3) excludes a bonus whose fact and amount the employer determines at its sole discretion at or near the end of the period rather than by prior promise, and § 207(h)(1) provides that sums excluded under subsection (e) are generally not creditable toward the overtime compensation required. An employee’s agreement to the arrangement is no answer, because under Minn. Stat. § 177.27, subd. 8, “[a]n agreement between the employee and the employer to work for less than the applicable wage is not a defense to the action.” If you kept no hours records because the job was treated as exempt, the commissioner may determine the wages due from available evidence.

Liquidated damages. Federal law makes the employer liable for the unpaid amount “and in an additional equal amount as liquidated damages,” 29 U.S.C. § 216(b), subject to the court’s discretion to reduce or withhold that amount on a showing of good faith and reasonable grounds under 29 U.S.C. § 260. Minnesota reaches the same doubling in its own words and supplies no comparable good-faith reduction: the employer “is liable to the employee for the full amount of the wages, gratuities, and overtime compensation, less any amount the employer . . . is able to establish was actually paid to the employee and for an additional equal amount as liquidated damages.” Minn. Stat. § 177.27, subd. 8.

The federal good-faith escape is narrow. You must show that the act or omission “was in good faith and that [you] had reasonable grounds for believing that [the] act or omission was not a violation” of the Act, and even then the court “may, in its sound discretion, award no liquidated damages or award any amount thereof not to exceed the amount specified in section 216 of this title.” The Eighth Circuit calls that burden “a difficult one, with double damages being the norm and single damages the exception,” requiring “an honest intention to ascertain and follow the dictates of the FLSA” and proof that the employer “took affirmative steps to ascertain the Act’s requirements.” Chao v. Barbeque Ventures, LLC, 547 F.3d 938, 941-43 (8th Cir. 2008). Three arguments failed there: that the owners did not know employees were working at multiple locations, that years had passed without employee complaints, and that payroll had been handed to an outside company, of which the court said that “the duty rests on the employer to inquire into the conditions prevailing in his business.”

Civil penalties for repeated or willful violations. This layer runs on a repeated or willful finding, and it can come from either direction: the commissioner under Minn. Stat. § 177.27, subd. 7, or a district court in the employee’s own action, because subdivision 8 makes subdivision 7 relief available to a private party. Milner v. Farmers Insurance Exchange, 748 N.W.2d 608 (Minn. 2008). Minn. Stat. § 177.27, subd. 7 provides that an employer “found by the commissioner to have repeatedly or willfully violated” a section listed in subdivision 4, which includes the state overtime provisions, “shall be subject to an additional civil penalty of up to $10,000 for each violation for each employee.” A single misclassified job code applied to twenty employees is twenty potential penalties once the commissioner makes that finding. A records failure carries its own exposure: the commissioner may fine the employer up to $10,000 for each failure to submit or deliver records.

Attorney fees. In the employee’s own action, both statutes shift fees and costs to the employer, the state one under Minn. Stat. § 177.27, subd. 10, for an action brought under subdivision 8 where the employer is found to have committed a violation, and the federal one in addition to any judgment awarded to the plaintiff under 29 U.S.C. § 216(b). Minn. Stat. § 177.27, subd. 10 provides that the court “shall order” payment of “reasonable costs, disbursements, witness fees, and attorney fees,” and § 216(b) is parallel: the Eighth Circuit reads it as a command, holding that the district court “must ‘allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action.’” Burton v. Nilkanth Pizza Inc., 20 F.4th 428 (8th Cir. 2021). Fee-shifting often becomes the dominant cost in litigated misclassification cases, particularly when the underlying wage exposure is modest but the fees compound over discovery and trial preparation.

Two more federal provisions matter. A willful violation can be prosecuted: 29 U.S.C. § 216(a) sets a fine of up to $10,000 for willfully violating 29 U.S.C. § 215, whose subsection (a)(2) makes it unlawful to violate the overtime requirement. Imprisonment of up to six months is available only for an offense committed after a prior conviction. Settling through the Department of Labor also affects the employee’s private claim. Under § 216(c), an employee who agrees to accept back wages paid under the Department’s supervision waives, upon payment in full, the right to sue for those wages and the equal amount of liquidated damages.

Two structural points decide how big all of this gets. The claim scales across the group: a Minnesota action under subdivision 8 “may be brought by one or more employees,” Minn. Stat. § 177.27, subd. 9, and a federal action may be maintained by one or more employees on behalf of others similarly situated, though each must file written consent to become a party. And the lookback is bounded rather than open-ended. 29 U.S.C. § 255(a) requires the action to be commenced within two years, or three for a willful violation, and Minn. Stat. § 541.07(5) sets the same two-year period, extended to three if the nonpayment was willful and not the result of mistake or inadvertence, or if the employer fails to submit payroll records by a date the Department of Labor and Industry specifies. The Minnesota Supreme Court treated § 541.07(5) as the limitations period for a state wage and overtime claim in an Attorney General enforcement action in January 2026, while declining to decide which tier applied on those facts. State of Minnesota Office of the Attorney General v. Madison Equities, Inc., No. A24-0107 (Minn. Jan. 7, 2026).

The combined math means a position that would have cost an extra $8,000 a year in overtime, sustained over several years across multiple employees, can produce a six-figure liability once liquidated damages and fee-shifting are applied. This is why doing the duties test correctly the first time costs less than correcting a classification after a complaint.

Classification is not a payroll preference; for the salaried white-collar exemptions it is a fact-specific legal conclusion you reach by running the salary level (29 C.F.R. § 541.600), the salary basis rule (29 C.F.R. § 541.602), and the applicable duties test (29 C.F.R. § 541.100, § 541.200, § 541.300) against each position, alongside Minnesota’s separate exemption under Minn. Stat. § 177.23, subd. 7, whose duties criteria appear in Minn. R. 5200.0190, Minn. R. 5200.0200, and Minn. R. 5200.0210. The doctrine looks formulaic on paper and turns judgmental fast, particularly on the administrative exemption and on working-supervisor executive analyses. A defensible classification file documents the salary, the written no-improper-deduction policy that § 541.603 rewards, the state wage notice stating exempt status and its basis, and a written duties analysis tied to 29 C.F.R. Part 541 and to Minn. R. 5200.0180 to 5200.0211, refreshed when the role changes. For broader employment-law context, see /practice-areas/employment/. If you would like me to analyze a specific position, or a group of positions you are reviewing, and tell you whether each meets an exemption, email aaron@aaronhall.com with a short description. I will start an intake and conflict check before you send position descriptions or other confidential employment materials.