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Technology & SaaS Companies: Employee Classification for Payroll (2026)
Employee classification in technology companies is two questions: whether software engineers and product managers are employees or contractors, and whether the employees are exempt from overtime. Job titles do not determine exemption status. BEG runs technology company payroll for $45 per employee per month inside the payroll software you already use, all-inclusive, live in 3 to 5 business days.
Employee or contractor: how technology companies get it wrong
Job titles do not determine exemption status. To be exempt as a computer employee, the worker's primary duty must consist of systems analysis to determine specifications, the design, development, testing, or modification of computer systems or programs, or work on programs related to machine operating systems.
The section 530 relief provision for misclassified workers does not apply to a technical service specialist, such as an engineer, designer, drafter, computer programmer, or systems analyst, that a firm provides to another business under an arrangement between the two. The common-law rules still control whether the specialist is an employee or an independent contractor.
Exempt or non-exempt
Computer systems analysts, programmers, software engineers, and similarly skilled workers are exempt from minimum wage and overtime under sections 13(a)(1) and 13(a)(17) if they meet the duties test and are paid either on a salary or fee basis at the standard salary level or on an hourly basis at not less than $27.63 an hour.
The salary floor for the executive, administrative and professional exemptions is $684 a week, restored to the 2019 level after the 2024 rule was vacated. Software developers at the May 2025 national median of $135,980 a year clear that salary test, so the duties test decides.
What misclassification costs
The federal income tax withholding rate on supplemental wages, which include bonuses and commissions, is 22 percent, and 37 percent to the extent an employee's supplemental wages during the calendar year exceed $1 million. The 37 percent rate applies without regard to the employee's Form W-4.
Reclassifying a contractor as an employee means back FICA at 15.3 percent split between the parties, back FUTA, penalties and interest, and often back overtime under the FLSA at time and one half for two or three years.
The rules behind this page, with sources
General information, not legal advice. Every rule below was read on the agency page linked next to it.
- Job titles do not determine exemption status. To be exempt as a computer employee, the worker's primary duty must consist of systems analysis to determine specifications, the design, development, testing, or modification of computer systems or programs, or work on programs related to machine operating systems. [DOL Fact Sheet #17E]
- The section 530 relief provision for misclassified workers does not apply to a technical service specialist, such as an engineer, designer, drafter, computer programmer, or systems analyst, that a firm provides to another business under an arrangement between the two. The common-law rules still control whether the specialist is an employee or an independent contractor. [IRS Publication 15-A (2026), section 1]
- Computer systems analysts, programmers, software engineers, and similarly skilled workers are exempt from minimum wage and overtime under sections 13(a)(1) and 13(a)(17) if they meet the duties test and are paid either on a salary or fee basis at the standard salary level or on an hourly basis at not less than $27.63 an hour. [DOL Fact Sheet #17E]
- The federal income tax withholding rate on supplemental wages, which include bonuses and commissions, is 22 percent, and 37 percent to the extent an employee's supplemental wages during the calendar year exceed $1 million. The 37 percent rate applies without regard to the employee's Form W-4. [IRS Publication 15 (2026)]
Read the full guide to the employee versus contractor test, and the rest of the technology company payroll library.
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Frequently Asked Questions
Are software engineers in a technology company employees or contractors?
Job titles do not determine exemption status. To be exempt as a computer employee, the worker's primary duty must consist of systems analysis to determine specifications, the design, development, testing, or modification of computer systems or programs, or work on programs related to machine operating systems.
What does the second test look at?
The section 530 relief provision for misclassified workers does not apply to a technical service specialist, such as an engineer, designer, drafter, computer programmer, or systems analyst, that a firm provides to another business under an arrangement between the two. The common-law rules still control whether the specialist is an employee or an independent contractor.
Which technology company employees can be exempt from overtime?
Computer systems analysts, programmers, software engineers, and similarly skilled workers are exempt from minimum wage and overtime under sections 13(a)(1) and 13(a)(17) if they meet the duties test and are paid either on a salary or fee basis at the standard salary level or on an hourly basis at not less than $27.63 an hour.
What does managed payroll cost for a technology company?
$45 per employee per month, all-inclusive, inside the payroll software you already use, with no monthly minimum. Equity compensation handling, remote employee multi-state tax and contractor classification are configured at setup, not billed as add-ons.
Related Resources
Anthony leads payroll solutions at Business Executive Group, a national managed payroll firm serving businesses across industries including Technology & SaaS Companies. BEG manages payroll at $45 PEPM, all-inclusive, with deep expertise in compliance, multi-state filing, and industry-specific payroll requirements. Get instant pricing at beghr.com.
Authoritative source: IRS: Independent Contractor or Employee
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