Exempt vs. Nonexempt Employees in Minnesota

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

An employee is “exempt” only when the position simultaneously satisfies a salary level, a salary basis, and one of the recognized duties tests under federal law, with parallel state recognition under Minn. Stat. § 177.23 subd. 7. If any one of the three tests fails, the employee is nonexempt and is owed overtime under both 29 U.S.C. § 207 and Minn. Stat. § 177.25.

The recognized federal exemption categories under 29 U.S.C. § 213(a) are executive, administrative, professional, outside sales, and computer employees, each defined by its own duties regulation in 29 C.F.R. Part 541. Minnesota’s § 177.23 subd. 7(6) tracks the federal categories by exempting individuals “in a bona fide executive, administrative, or professional capacity,” and outside salespeople “who conduct no more than 20 percent of sales on the premises of the employer.” Minnesota does not maintain its own salary thresholds or duties regulations; the federal definitions effectively govern who falls in the state exemption.

In my practice, the recurring pattern is a CEO who has labeled a position “salaried exempt” based on the salary alone, without ever running the duties test. That single oversight is the source of most misclassification exposure I see.

How does the federal salary level work 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. The 2024 Department of Labor rule that would have raised the threshold to $844/week in July 2024 and $1,128/week ($58,656/year) in January 2025 was vacated nationwide by a federal district court in Texas in November 2024. The threshold reverted to the 2019 level, which is what employers must apply today.

Minnesota does not impose a separate state salary threshold. A position paid below the federal level is nonexempt regardless of duties. A position paid above the federal level is potentially exempt, but only if the salary basis and duties tests also clear.

The computer employee exemption under 29 U.S.C. § 213(a)(17) has its own pay rule: the employee may be salaried at the standard $684/week threshold or paid hourly at “not less than $27.63 an hour.” Outside salespeople under § 213(a)(1) have no minimum salary requirement at all; their exemption rests entirely on the duties test.

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: the employee must receive the full predetermined salary in any week the employee performs any work, with limited exceptions.

The permissible deductions under § 541.602(b) are narrow:

• Full-day absences for personal reasons unrelated to sickness or accident.
• Full-day absences for sickness or disability if taken under a bona fide plan that pays for those absences.
• Offsets for jury duty, witness fees, or military pay.
• Penalties imposed in good faith for infractions of safety rules of major significance.
• Unpaid disciplinary suspensions of one or more full days for workplace conduct violations under a written policy applied to all employees.
• Proportionate pay in the initial or terminal week of employment.
• Unpaid leave under the Family and Medical Leave Act.

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 and can convert the employee, and every other employee in the same job classification, to nonexempt with retroactive overtime exposure.

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/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 recommendations on hiring, firing, advancement, promotion, or other status changes “are given particular weight.”

“Primary duty” is the test most often misread. It is not a 50-percent-of-time count; it is the principal, main, or most important duty, weighing time, importance, freedom from supervision, and the relationship to nonexempt pay. A working supervisor who spends 70% of the week on the line but exercises real hiring, firing, scheduling, and discipline authority can still qualify. A “shift lead” who simply runs the same line as everyone else without meaningful management authority does not, no matter how much the title sounds managerial.

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 basis at the § 541.600 level.
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 that helps run the business itself: finance, accounting, HR, compliance, marketing strategy, procurement, quality control, IT systems planning, government relations. It does not mean work on the production line, in customer service intake, or in routine processing of business as the company sells it.

“Discretion and independent judgment with respect to matters of significance” is the second wall. The employee must compare and evaluate possible courses of action, then make decisions, on questions that have meaningful business consequence. Following a detailed decision tree or applying well-established procedures, even at high skill, is not discretion in this sense. A senior claims-intake specialist who applies a published rubric is usually nonexempt; a benefits manager who designs the plan and resolves escalated coverage disputes is usually exempt.

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.” Lawyers, doctors, registered nurses, engineers, architects, CPAs, scientists, journalists with creative latitude, and graphic designers in true creative roles typically qualify. Paralegals, LPNs, accounting clerks, and technicians applying standardized procedures generally do not.

The computer employee exemption under § 213(a)(17) applies to systems analysts, programmers, software engineers, and similarly skilled workers whose primary duty is systems analysis, the design or development of computer systems or programs, the documentation, testing, or modification of programs based on design specifications, or a combination of those duties. Help-desk technicians, end-user support staff, and hardware installers generally fall outside the exemption even when paid a salary.

The outside sales exemption under § 213(a)(1) and 29 C.F.R. § 541.500 applies to employees whose primary duty is making sales or obtaining orders, and who are customarily and regularly engaged away from the employer’s place of business. It has no salary-level requirement, but the “away from the employer’s place of business” element is strict: a salesperson who works the phones from a desk most days is nonexempt as an inside salesperson, not exempt under this rule. Minnesota’s § 177.23 subd. 7(6) cross-references the same idea by exempting salespeople “who conduct no more than 20 percent of sales on the premises of the employer.”

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 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, by contrast, sets the federal threshold at 40 hours under 29 U.S.C. § 207. Where both laws apply to a nonexempt employee, the employer must comply with whichever produces the higher overtime obligation, which is virtually always the federal 40-hour rule. Most Minnesota employers are covered by FLSA because they exceed the FLSA enterprise-coverage thresholds or employ workers engaged in interstate commerce.

The state rule still matters in two situations. First, for a small Minnesota employer that falls below FLSA enterprise coverage and whose workers do not engage in interstate commerce, state law alone applies and the threshold is 48 hours. Second, Minnesota’s separate exemption list under § 177.23 subd. 7 covers categories the FLSA does not, including taxi drivers, certain seasonal carnival and ski-facility workers, and DOT-regulated drivers, which can change the analysis at the margins. For most employers, the practical rule remains: pay nonexempt employees overtime at 1.5x for all hours over 40 in a workweek, full stop.

What does Minnesota law require beyond FLSA?

Minnesota wage law overlays FLSA in several ways that affect exempt and nonexempt populations both. § 177.23 subd. 7 lists nineteen categories of individuals excluded from “employee” status for state minimum wage and overtime purposes, including the EAP exemption, outside-sales exemption with the 20-percent-on-premises cap, certain agricultural workers paid above stated salary thresholds, taxi drivers, seasonal workers in carnivals, circuses, fairs, and ski facilities (limited to § 177.25 only), DOT-regulated drivers, and members of religious orders.

Minnesota also imposes paystub-itemization, recordkeeping, and final-pay obligations under separate statutes that apply regardless of exempt status. The Earned Sick and Safe Time law likewise covers exempt and nonexempt employees alike. None of those obligations depend on classification, but they often 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 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 does an employer owe for misclassification?

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

Unpaid overtime. The employee is owed back wages for all overtime hours actually worked over the lookback window, calculated at 1.5x the regular rate. The “regular rate” includes nondiscretionary bonuses, commissions, and shift differentials, not just base pay, which often pushes the recovery higher than employers expect.

Liquidated damages. Both 29 U.S.C. § 216(b) and Minn. Stat. § 177.27 subd. 8 impose liquidated damages “in an additional equal amount” as the unpaid wages, effectively doubling the back-pay number. The federal good-faith defense is narrow and does not apply when the employer lacked any documented basis for the exempt classification.

Civil penalties for repeated or willful violations. § 177.27 subd. 7 authorizes “an additional civil penalty of up to $10,000 for each violation for each employee” when the violation is repeated or willful. A single misclassified job code applied to twenty employees is twenty potential penalties.

Attorney fees. Both statutes shift the employee’s reasonable attorney fees to the employer. § 177.27 subd. 10 provides that the court “shall order” payment of “reasonable costs, disbursements, witness fees, and attorney fees.” § 216(b) is parallel. 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.

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 the cheap remediation, doing the duties test correctly the first time, is dramatically cheaper than the corrective remediation after a complaint lands. About half of the misclassification matters I see started as a single employee’s complaint that triggered a job-classification audit reaching the rest of the workforce.

Classification is not a payroll preference; it is a fact-specific legal conclusion you reach by running the salary level, salary basis, and duties tests against each position. 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 salary basis policy, and a written duties analysis tied to 29 C.F.R. Part 541, refreshed when the role changes. For broader employment-law context, see /practice-areas/employment/. If you’d like a second set of eyes on a specific position or a cohort you’re reviewing, email [email protected] with the job descriptions and a brief note on how the role actually operates day to day.