This month, we’re excited to introduce Kristin Bourdony, Ross Insight Solutions’ new HR Generalist and our guest blogger. Kristin brings a wealth of HR knowledge and practical experience to our team, and in this month’s article, she shares valuable insights on employee classification, overtime exemptions, and common compliance pitfalls that employers should understand.
5 Ways Employers Misclassify Exempt Employees Without Realizing It
Responsibility. Title. Autonomy. For many business owners, those three things add up to one conclusion: exempt employee. It is a reasonable assumption, and it is often wrong.
The Fair Labor Standards Act (FLSA) governs who is entitled to overtime pay and who is not. Generally, non-exempt employees are eligible for overtime when they work more than 40 hours in a workweek, while exempt employees are excluded from those overtime requirements. Many employers mistakenly believe that paying someone a salary or giving them a professional-sounding title automatically makes them exempt, but the law is far more specific.
The FLSA sets detailed criteria for overtime exemptions, and they go well beyond compensation structure or job title. That gap between what employers assume and what the law actually requires is where misclassification often occurs. In fiscal year 2025, the Department of Labor’s Wage and Hour Division recovered more than $259 million in back wages for nearly 177,000 workers, the highest annual recovery since 2019. That number reflects not only intentional violations, but also the quiet, costly mistakes of employers who genuinely believed they had classified employees correctly.
When a misclassification is found, the financial exposure compounds quickly. Employers may owe back pay for unpaid overtime going back two or even three years. In many cases, employees have not kept detailed records of the hours they worked. When that happens, the Department of Labor allows employees to provide a reasonable estimate of their typical work hours, and those estimates are often used when calculating damages.
The impact rarely stops with the employee who raised the complaint. Investigators will also review the classification of other employees within the company, which can dramatically expand the scope of liability. Under the FLSA, liquidated damages can equal the full amount of back wages owed, effectively doubling the liability before attorney fees enter the picture. What may begin as a single employee complaint can quickly grow into a six-figure problem for an employer who believed they were following the rules.
The good news is that misclassifications are preventable. Here are five of the most common places employers go wrong.
Mistake #1: Treating a Salary as a Substitute for the Duties Test
This is the most widespread misconception, and it is easy to understand why. Paying someone a salary feels like the defining characteristic of an exempt employee. It is not.
To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $684 per week. Beyond that salary floor, the duties test, specific to the applicable exemption category, is where the real analysis happens.
An employee earning $90,000 a year can still be entitled to overtime if their actual job duties do not satisfy the applicable duties test. What matters is what they do every day, not what appears on their offer letter.
Worth noting: the salary threshold has been the subject of active regulatory and legal activity in recent years, with the DOL attempting a significant increase in 2024 before it was vacated by a federal court. This is a space worth watching. Classifications that feel settled today may require a second look as the regulatory environment shifts.
Mistake #2: Relying on Job Title to Determine Exempt Status
“Manager.” “Director.” “Supervisor.” These titles carry weight in an organizational chart. They carry none with the Department of Labor.
The tests for determining exempt status measure the actual duties and responsibilities of the employee, not the job title. A title is a label. The FLSA cares about what happens after the label is printed on the business card.
Consider an Office Manager who spends the majority of their day ordering supplies, maintaining calendars, preparing conference rooms, and coordinating lunch orders. The title may suggest executive or administrative authority. The duties tell a different story. Without meaningful decision-making responsibility and independent judgment on matters of significance, that employee likely does not qualify for either exemption, regardless of what it says on their door.
Many employers misunderstand how these exemption standards are applied. It is common to assume that an employee who exercises independent judgment or has decision-making authority automatically qualifies as exempt. However, the Department of Labor applies specific legal definitions to those terms, and many positions do not meet the required threshold.
Because the duties tests are highly fact-specific, employers should seek experienced HR or legal guidance when evaluating exempt classifications. What appears compliant on the surface may not hold up under regulatory scrutiny.
Mistake #3: Misapplying the Administrative Exemption
Of the FLSA’s white-collar exemption categories – Executive, Administrative, Professional, Computer Employee, Outside Sales, and Highly Compensated Employee – the administrative exemption is the one that trips employers up most often. The name itself is part of the problem. “Administrative” sounds like it should cover anyone doing office work. It does not.
To qualify, an employee must perform non-manual work, and their primary duty must involve the exercise of discretion and independent judgment with respect to matters of significance. That phrase does real legal work. It means the employee has genuine authority to evaluate options and make decisions that affect the overall business operations, not simply to execute a process someone else designed or make day-to-day decisions.
A few questions worth asking before applying this exemption: Does the employee follow established procedures, or do they assess competing courses of action and choose among them? How much supervision is required before a meaningful decision can be made? Is the employee carrying out policy, or participating in setting it?
Employees who primarily enter data, process transactions, or handle routine administrative tasks generally do not clear this bar, even if their role is indispensable and they perform it well.
“A job title tells you what someone is called. The FLSA cares about what they actually do, and those two things are not always the same.” — Kristin Bourdony, Ross Insight Solutions
Mistake #4: Equating Independence with Exempt Status
Some of the most trusted people in a small business are not exempt employees.
Picture a bookkeeper who has been with the company for fifteen years. She manages the entire accounts receivable process without being asked, rarely needs direction, and has more institutional knowledge than anyone on the payroll. Her employer classifies her as exempt because she functions like one. She does not need hand-holding. She practically runs herself.
But the FLSA does not measure trust or tenure. It measures duties. If that bookkeeper’s primary responsibilities involve following established accounting procedures and entering data into the system, however expertly, she likely does not meet the duties test for any exemption category. The fact that she requires minimal supervision speaks to her competence, not her classification.
Autonomy is an organizational asset. Under the FLSA, it is not a legal standard.
Mistake #5: Treating a Job Description as a Permanent Record
The classification decision you made when you hired someone may not reflect the job they are doing today.
Organizations grow. Teams restructure. Responsibilities shift informally, often without anyone updating a job description or revisiting an exemption status. An employee who was correctly classified as exempt three years ago may now spend most of their time on duties that do not support that classification, particularly after a reorganization, a promotion, or a period of rapid growth where roles stretched to fill gaps.
Exemption status is not a one-time determination. It is a dynamic question that should be revisited any time a role changes in a meaningful way. If the job description sitting in your files no longer reflects what the employee actually does, it should be updated and the classification attached to it deserves a second look.
The Best Defense Is a Proactive One
Misclassification rarely happens because an employer was cutting corners. It happens because the rules are more specific than most people realize, and businesses have not stopped to consider that misclassification could happen.
The most reliable protection is a regular audit: job descriptions, actual day-to-day duties, and salary levels reviewed together, not in isolation. The right time to identify a problem is before a complaint is filed or an investigation begins. At that point, the conversation shifts from proactive compliance to damage control.
If you are uncertain where your classifications stand, or if organizational changes have outpaced your last review, that is exactly the kind of question worth exploring before it becomes a liability. Whether you need a straightforward classification audit or broader HR compliance support, having an experienced partner in your corner makes the process considerably less daunting and considerably less risky.
