Fact Sheet #17H: Highly-Compensated Employees and the Part 541 Exemption Under the Fair Labor Standards Act (FLSA)

Revised August 2024

On April 26, 2024, the U.S. Department of Labor (Department) published a final rule, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, to update and revise the regulations issued under section 13(a)(1) of the Fair Labor Standards Act implementing the exemption from minimum wage and overtime pay requirements for executive, administrative, and professional employees. Revisions included increases to the standard salary level and the highly compensated employee total annual compensation threshold, and a mechanism for updating these earnings thresholds to reflect current earnings data. On November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated the Department's 2024 final rule. Consequently, with regard to enforcement, the Department is applying the 2019 rule's minimum salary level of $684 per week and total annual compensation requirement for highly compensated employees of $107,432 per year. Lawsuits regarding the 2024 final rule are currently pending in two other federal district courts, and the United States has filed a notice of appeal from the November 15 decision. The Department will update this notice with additional information as it becomes available.

This fact sheet provides information on the exemption from minimum wage and overtime pay provided by Section 13(a)(1) of the FLSA as it applies to highly compensated employees as defined in 29 CFR 541.601.

The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at not less than time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek.

Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees. Section 13(a)(1) and Section 13(a)(17) also include an exemption from minimum wage and overtime for certain employees in computer-related occupations. In order for an exemption to apply, an employee's specific job duties and salary must meet the requirements of the Department's regulations. The standard salary level can be found in 29 CFR 541.600 and listed at https://www.dol.gov/agencies/whd/overtime/salary-levels.

Highly Compensated Employees

The regulations contain an alternative "highly compensated" employee (HCE) test for certain employees who are paid the compensation requirements provided in 29 CFR 541.601 and listed at https://www.dol.gov/agencies/whd/overtime/salary-levels. Under the HCE test, an employee is deemed exempt under Section 13(a)(1) if:

The employee earns total annual compensation that meets the requirements provided in 29 CFR 541.601 and listed at https://www.dol.gov/agencies/whd/overtime/salary-levels;
The employee's primary duty includes performing office or non-manual work; and
The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.

For example, an employee may be exempt from minimum wage and overtime protections if they are highly compensated and customarily and regularly direct the work of two or more other employees, even though the employee does not meet all of the other duties requirements in the standard test for exemption as an executive.

Total Annual Compensation

Under the HCE test, employees must earn at least a certain amount in total annual compensation, including a weekly salary of at least the standard salary level paid on a salary or fee basis. An employee's total annual compensation may otherwise consist of commissions, nondiscretionary bonuses and other nondiscretionary compensation earned during a 52-week period, but does not consist of credit for board, lodging, or other facilities, payments for medical or life insurance, or contributions to retirement plans or other fringe benefits.

The weekly salary must be paid in its entirety. Employers may not use nondiscretionary bonuses and incentive payments (including commissions) to satisfy any portion of the standard salary level for HCEs.

Make-up Payments and Prorating

There are special rules for prorating the annual compensation requirement if employees work only part of the year. These rules also allow payment of a single lump-sum, make-up amount to satisfy the required annual amount at the end of the year, or earlier for employees who terminate before the year ends.

Customarily and Regularly

"Customarily and regularly" means greater than occasional but may be less than constant, and includes work normally and recurrently performed every workweek but does not include isolated or one-time tasks.

Where to Obtain Additional Information

For additional information, visit our Wage and Hour Division Website: http://www.dol.gov/agencies/whd and/or call our toll-free information and helpline, available 8 a.m. to 5 p.m. in your time zone, 1-866-4USWAGE (1-866-487-9243). If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services.

This publication is for general information and is not to be considered in the same light as official statements of position contained in the regulations.

The contents of this document do not have the force and effect of law and are not meant to bind the public in any way. This document is intended only to provide clarity to the public regarding existing requirements under the law or agency policies.