Abuse of Salaried Employees: Misclassification and Wage Theft

The abuse of salaried employees usually takes one of a few predictable forms: being wrongly labeled exempt to avoid paying overtime, having your salary docked for partial days or slow business, working hours your employer refuses to count, losing benefits your plan promised, or being punished for saying something about it. The Fair Labor Standards Act and related federal laws give you real leverage in each of these situations, including back pay, an equal amount in liquidated damages, and your attorney’s fees if you win. What follows walks through where the law draws its lines and what you can do when your employer crosses one.

Being Wrongly Labeled Exempt

The single most costly mistake employers make with salaried workers is calling them “exempt” when they are not. Exempt employees receive no overtime pay, so there is a direct financial incentive to stretch the label. Under the FLSA, you qualify as exempt only if you pass both a salary test and a duties test. Fail either one and you are owed time-and-a-half for every hour past 40 in a workweek.¹

The Salary Test

You generally must earn at least $684 per week ($35,568 per year) on a salary basis to be exempt. The Department of Labor tried to raise that threshold in 2024, but a federal court vacated the new rule in November 2024 and enforcement reverted to the 2019 levels.² A separate “highly compensated employee” exemption applies at $107,432 per year, but even those workers must perform at least one duty tied to executive, administrative, or professional work.¹ Several states set higher thresholds; if yours does, the higher number applies to you.

The Duties Test

Meeting the salary requirement alone does not make you exempt. Your day-to-day work has to fit one of the recognized categories: executive, administrative, professional, computer, or outside sales. Job titles do not decide the question. An employer can call you a “manager,” but if you spend most of your time doing the same work as the people you supposedly supervise, the exemption likely does not apply.¹ Courts read exemptions narrowly, and the employer carries the burden of proving one applies.³

Misclassified as a Contractor

Some employers go further and label workers independent contractors instead of employees. That shifts the full Social Security and Medicare tax burden onto you. Employees split the 15.3% payroll tax with the employer; a contractor pays it alone. If you think you have been misclassified as a contractor, you can file IRS Form SS-8 to request a formal determination of your worker status.⁴

Improper Deductions From Your Salary

Being paid on a salary basis means a fixed amount each pay period that does not change based on the quality or quantity of your work. Your employer generally cannot dock your salary for partial-day absences, slow business days, or operational shutdowns. If your paycheck moves up and down with your hours, you may not really be salaried at all, and the exempt classification could collapse.⁵

Federal regulations permit a limited set of deductions from an exempt employee’s pay:

Full-day personal absences, but not partial days.
Full-day sickness absences when the employer has a paid leave policy in place.
Unpaid disciplinary suspensions of one or more full days imposed in good faith for serious workplace conduct violations.
Partial-week deductions for leave taken under the Family and Medical Leave Act.

Deductions outside these categories put the exemption itself at risk, which would mean overtime owed for every week the improper deductions occurred.⁵

Employers do have a safe harbor. If they maintain a written policy against improper deductions, give employees a way to report violations, and reimburse workers for any that occur, the exemption survives. The safe harbor disappears if the same deductions keep happening after complaints. That is why documenting your complaint in writing matters: without a record, the employer can more easily claim the safe harbor.⁶

Denied Overtime and Off-the-Clock Work

Non-exempt salaried employees are entitled to overtime at one and a half times their regular rate for every hour past 40 in a workweek.⁷ Averaging hours across two weeks, substituting comp time, or simply not tracking hours for salaried workers are all common workarounds, and none of them are legal under federal law for non-exempt employees.

A quieter form of overtime denial is work the employer refuses to count. Under the FLSA, any time your employer “suffers or permits” you to work is compensable, even without an explicit instruction to keep going. Staying late to finish an assignment, answering emails during lunch, and attending mandatory training all count as work time.⁸

Training time escapes compensation only when it meets all four conditions: it happens outside normal working hours, attendance is voluntary, the content is not directly related to your job, and you perform no productive work during it. Mandatory safety seminars and skills training during work hours are always paid.⁸

What Wage Theft Costs the Employer

Wage theft covers unpaid overtime but also unauthorized paycheck deductions, unpaid hours, and withheld final paychecks. The FLSA requires covered employers to keep accurate records of employees’ hours, pay rates, and total compensation.⁹ When employer records are inadequate, the Supreme Court has held that doubts about hours worked get resolved in the employee’s favor, and a reasonable employee estimate can support recovery.¹⁰ Keep your own log. Start and end times each day, in a notebook or a phone app, can become the record that decides your case.

An employer found liable for unpaid wages owes the back pay plus an equal amount in liquidated damages, doubling the bill.¹¹ The only escape from liquidated damages is convincing a court the violation was in good faith and based on reasonable belief the conduct was lawful.¹² Willful violations carry criminal penalties of up to $10,000 in fines, with up to six months’ imprisonment for repeat offenders previously convicted of a wage violation. Some states allow double or triple recovery of unpaid wages on top of that.

If you win, your employer must pay your reasonable attorney’s fees and court costs. The statute uses “shall,” not “may.” That mandatory fee-shifting is one reason attorneys take wage cases for workers who could not otherwise afford to sue.¹¹

Benefits Your Plan Promised

The Employee Retirement Income Security Act governs employer-sponsored retirement and health plans. ERISA requires employers to follow their own plan documents, disclose benefit information clearly, run a grievance process, and manage plan assets responsibly.¹³ If your employer imposes eligibility restrictions that are not in the plan or denies benefits the plan clearly grants, you can file a claim with the Department of Labor or sue.

Where a Summary Plan Description promised one thing and the plan itself said another, the Supreme Court has held that employees can seek equitable relief for the harm caused, even though the summary does not automatically override the plan terms.¹⁴

Retaliation for Speaking Up

Federal law protects employees who report workplace violations. The FLSA makes it illegal to fire, demote, cut pay, or otherwise punish a worker for filing a wage complaint or cooperating with an investigation.¹⁵ Similar protections cover safety complaints handled by OSHA and discrimination claims under Title VII.¹⁶

You do not need to file a government complaint to be protected. The FLSA covers oral and written complaints, and most courts have held that internal complaints made directly to your employer also count.¹⁷ Telling your supervisor in a meeting that you believe the company is not paying overtime correctly qualifies.

The Supreme Court has read retaliation broadly. Any employer action that would dissuade a reasonable worker from making or supporting a complaint can qualify, which reaches beyond termination to reassignment, shift changes, exclusion from meetings, or changes to job responsibilities.¹⁸ Employers found liable for FLSA retaliation can owe lost wages plus liquidated damages and your attorney’s fees.¹¹

Deadlines That End Your Claim

Every claim has a filing deadline, and missing it can wipe out your recovery.

FLSA wage claims: two years from the date of the violation to file, extended to three years if the violation was willful.¹⁹
EEOC discrimination and retaliation claims: 180 calendar days from the discriminatory act, extended to 300 days if a state or local agency enforces a similar law.²⁰

The clock runs from each violation, not from when you first noticed a pattern. For ongoing violations like repeated missed overtime, each paycheck can start its own clock. Internal grievance procedures and mediation do not pause the EEOC deadline.²⁰

How to File a Complaint

The Department of Labor’s Wage and Hour Division handles unpaid wages, overtime, and misclassification complaints. Call 1-866-487-9243 or contact your nearest WHD office online. Complaints are confidential; the WHD does not disclose your name, the nature of the complaint, or whether a complaint exists to your employer.²¹

For discrimination or retaliation under Title VII, the EEOC handles intake. The process starts with a charge, followed by investigation or mediation before any lawsuit can proceed. You are not required to have an attorney for either agency, but a lawyer familiar with wage and hour law can help you frame the claim and avoid procedural missteps.

Before filing, gather what you can: pay stubs, time records, emails discussing hours or pay, your employment contract, and any written policies. If your employer never tracked your hours, your own contemporaneous notes about start and stop times become the most valuable evidence you have.

1
U.S. Department of Labor. Fact Sheet 17A: Exemption for Executive, Administrative, Professional, Computer and Outside Sales Employees Under the FLSA
2
U.S. Department of Labor. Earnings Thresholds for the Executive, Administrative, and Professional Exemptions
3
U.S. Department of Labor. Fair Labor Standards Act Advisor – Exemptions
4
Internal Revenue Service. About Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding
5
eCFR. 29 CFR 541.602 – Salary Basis
6
eCFR. 29 CFR 541.603 – Effect of Improper Deductions From Salary
7
U.S. Department of Labor. Handy Reference Guide to the Fair Labor Standards Act
8
U.S. Department of Labor. Fact Sheet 22: Hours Worked Under the Fair Labor Standards Act
9
Office of the Law Revision Counsel. 29 U.S. Code 211 – Collection of Data
10
Legal Information Institute. Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680
11
Office of the Law Revision Counsel. 29 U.S. Code 216 – Penalties
12
Office of the Law Revision Counsel. 29 USC 260 – Liquidated Damages
13
U.S. Department of Labor. ERISA
14
Justia. CIGNA Corp. v. Amara, 563 U.S. 421 (2011)
15
Office of the Law Revision Counsel. 29 USC 215 – Prohibited Acts
16
U.S. Equal Employment Opportunity Commission. Fact Sheet: Retaliation Based on Exercise of Workplace Rights Is Unlawful
17
U.S. Department of Labor. Fact Sheet 77A: Prohibiting Retaliation Under the Fair Labor Standards Act
18
Justia. Burlington Northern and Santa Fe Railway Co. v. White, 548 U.S. 53 (2006)
19
Office of the Law Revision Counsel. 29 U.S. Code 255 – Statute of Limitations
20
U.S. Equal Employment Opportunity Commission. Time Limits for Filing a Charge
21
U.S. Department of Labor. How to File a Complaint