Running the tar command with the --exclude functionality does not work for directories
Solution 1:
So it turns out that to prevent the tarring of a directory you need to change where you're adding the --exclude
tar --exclude="./test1" -hczf t.tar.gz *
works
Solution 2:
The arguments come before the files.
tar hczf t.tar.gz --exclude="test1" *
will work.