You just promoted your first employee to “manager.”
New title. New responsibilities. Maybe a raise. And somewhere in the process, someone said “let’s just make them salaried” and you moved on to the next fire.
Here’s what I see with my clients at this stage: that one decision creates more legal exposure than almost anything else in the first-employee-handbook phase of a business. Because “salaried” and “exempt” are not the same thing, and treating them like they are is one of the most common wage-and-hour mistakes I catch.
Job title doesn’t decide anything
I know it feels like it should. You call someone a “Manager” or give them a fancy title, pay them a salary, and assume that settles it. It doesn’t.
The Department of Labor doesn’t care what you call the role. What matters is the duties test. Two questions determine whether an employee is legally exempt from overtime:
- Are they paid a salary above a minimum threshold set by federal (and sometimes state) law?
- Do their actual day-to-day duties meet specific criteria for exempt status?
Both have to be true. Not one. Both.
Salary thresholds change periodically at the federal level, and some states set their own, higher thresholds. Rather than quote a number that might be outdated by the time you read this, talk to counsel about the current threshold in your state before you finalize any reclassification. This is exactly the kind of detail that’s cheap to get right upfront and expensive to fix later.
The duties test is where founders get tripped up
Let’s say you promote your best salesperson to “Sales Manager.” They still spend 80% of their time closing deals themselves. They review a few reports. They don’t hire, fire, or set anyone’s schedule. They don’t have real authority over other employees.
That title alone doesn’t make them exempt. The law looks at whether they primarily perform executive, administrative, or professional duties as defined by the FLSA, not whether their business card says “Manager.”
Common exempt categories:
- Executive – regularly supervises two or more full-time employees, has real input into hiring/firing decisions
- Administrative – exercises independent judgment on significant business matters, not just following a checklist
- Professional – requires advanced knowledge, typically from specialized education (think CPAs, engineers, not customer support leads)
If your new “manager” doesn’t clearly fit one of these categories, paying them a salary doesn’t protect you. They may still be legally entitled to overtime, and if you’ve been treating them as exempt without qualifying duties, that’s back pay waiting to happen.
Why this matters more at your stage than it will later
At 1-10 employees, you don’t have an HR department double-checking these calls. You’re making them yourself, probably fast, probably between customer calls and product decisions. That’s completely normal. It’s also exactly why this is where mistakes happen.
Here’s the pattern: a misclassified employee leaves on bad terms, talks to a lawyer, and suddenly you’re looking at a wage claim covering months or years of unpaid overtime, plus penalties. One employee’s claim can trigger a Department of Labor audit that looks at every job classification in your company, not just theirs.
Consider a company that promoted an operations coordinator to “Operations Manager” after eight months, gave her a $5,000 raise, and moved her to salary. She kept doing the exact same tasks: data entry, scheduling, following a set process someone else designed. No real independent judgment, no supervisory authority. When she left for a competitor a year later, her exit interview turned into a wage claim. The company owed over a year of retroactive overtime pay because her actual duties never matched the exempt classification.
That’s not a rare story. It’s the most predictable mistake I see when founders reclassify based on title and salary alone.
What to do before your next promotion
Before you flip anyone’s status from non-exempt to exempt, walk through this:
- Write down what the person actually does day to day, not what the title implies
- Compare those duties against the FLSA exempt categories, not against what “feels” like a management role
- Confirm the salary meets the current federal and state threshold
- Document your reasoning in case it’s ever questioned
This is a 30-minute conversation that prevents a six-figure liability down the road. It’s also exactly the kind of issue we catch during quarterly check-ins with early-stage clients, before it becomes a departing employee’s parting gift.
Have you promoted someone in the last year and made them salaried? Worth double-checking their actual duties against the exempt test, not just their title. Happy to answer questions if you’re not sure where yours falls.
If you want contracts that hold, IP that’s protected, and legal bills that don’t surprise you every month, let’s talk. Garcia-Zamor Law Firm delivers fractional in-house counsel with a unique advantage: business law PLUS IP expertise, backed by 70+ years of combined experience. Passionately devoted to your success. Visit garcia-zamor.com or call (410) 531-9853.
