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It is not illegal to not pay exempt employees "overtime". They are not entitled to overtime under the law. As a matter of fact, some courts have ruled that paying exempt employees "overtime", especially on an hour-for-hour basis can invalidate the exemption. Exempt employees are paid for the job they do, no matter how many hours it takes.

Relative to the payroll person, it may be favoritism, but favoritism which is not based on a legally protected characteristic, such as age, race, gender, etc. is not illegal. If, in fact, the person in charge of payroll is properly qualified as exempt (which she very well may be), the same caveat applies to this payment of overtime as well.