Highly Compensated Employees - FLSA Exemptions

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

Table Of Contents

Highly Compensated Employee Exemption Test
Total Annual Compensation
Year-End Payments
Partial Year Work
Establishing the 52-Week Period
Types of Eligible Work
Related Topics

Highly Compensated Employee Exemption Test

To qualify for the highly compensated employee exemption, an employee must:

have a total annual compensation of at least $100,000;
customarily and regularly perform one or more of the duties of an executive, administrative, or professional exempt employee;
Earn not less than $455 per week (Beginning December 1, 2016, employers will be required to pay employees qualifying for this exemption not less than $913 per week; starting on January 1, 2020, this minimum earnings amount will change every three years according to a formula set forth in federal regulation changes issued on May 17, 2016.);
be compensated on a salary or fee basis; and
have a primary duty that includes performing office or non-manual work.

29 CFR 541.601(a)-(b)

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.