An employee is exempt from the Fair Labor Standards Act (FLSA) minimum wage and overtime rules if they are highly compensated. 29 USC 213(a)(1); 29 CFR 541.601
Highly Compensated Employee Exemption Test
To qualify for the highly compensated employee exemption, an employee must:
- Earn not less than an amount established by the US Department of Labor;
- customarily and regularly perform one or more of the duties of an executive, administrative, or professional exempt employee;
- be compensated on a salary or fee basis; and
- have a primary duty that includes performing office or non-manual work.
Total Annual Compensation
The total annual compensation may include commissions, nondiscretionary bonuses, and other nondiscretionary compensation earned during a 52-week period. It does not include board, lodging and other facilities or payments for medical and life insurance, contributions to retirement plans, or the cost of other fringe benefits. 29 CFR 541.601(b)(1)
Year-End Payments
If an employee appears to be short of the annual salary threshold near the end of the 52-week period used by the employer to establish the employee’s highly compensated status, the employer may, during the last pay period or within one month of the end of the 52-week period, pay the employee an amount that ensures they will earn the required minimum annual salary and qualify for the exemption. If the payment is made after the 52-week period, it may only be credited to the prior 52-week period. It cannot also be included in the total compensation for the year in which it was paid. 29 CFR 541.601(b)(2)
Partial Year Work
An employee may qualify for the highly compensated employee exemption even if they do not work for his or her employer for a full year. To determine if the exemption applies, the employee must receive a pro-rata portion of the required minimum annual salary based upon the number of weeks that the employee will be or has been employed. An employer may make one final payment as discussed above to ensure the employee qualifies for the exemption. If an employee appears to be short of the annual salary threshold near the end of the 52-week period used by the employer to establish the employee’s highly compensated status, the employer may, during the last pay period or within one month of the end of the 52-week period, pay the employee an amount that ensures they will earn the required minimum salary and qualify for the exemption. If the payment is made after the 52-week period, it may only be credited to the prior 52-week period. It cannot also be included in the total compensation for the year in which it was paid. 29 CFR 541.601(b)(3)
Establishing the 52-Week Period
The employer may use any 52-week period it chooses, such as a calendar year, a fiscal year, or an anniversary of hire year, to establish that the exemption applies. The calendar year applies if the employer does not identify some other year period in advance. 29 CFR 541.601(b)(4)
Types of Eligible Work
An employee may only qualify as a highly compensated exempt employee if his or her primary duty includes performing office or non-manual work. Thus, for example, non-management production-line workers and non-management employees in maintenance, construction, and similar occupations such as carpenters, electricians, mechanics, plumbers, ironworkers, craftsmen, operating engineers, longshoremen, construction workers, laborers, and other employees who perform work involving repetitive operations with their hands, physical skill and energy are not exempt under this section no matter how highly paid they might be.
Related Topics
- Combination Exemptions
- Directly and Closely Related
- Emergencies
- Fee Basis
- FLSA Exemptions Summary
- Occasional Nonexempt Tasks
- Primary Duty
- Salary Basis
- Trainees
