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The Highly Compensated Exemption and Some Other Forgotten Exemptions to the FLSA’s Overtime Requirem The Highly Compensated Exemption and Some Other Forgotten Exemptions to the FLSA’s Overtime Requirem

The Highly Compensated Exemption and Some Other Forgotten Exemptions to the FLSA’s Overtime Requirements…

I once tried to count all of the miscellaneous exemptions contained in the FLSA. I lost count somewhere around 65, as it depends on whether subparts of the U.S. Code count as more than one. Some of these exemptions apply to minimum wage and overtime and others just to overtime, but there are a few more than just the “white-collar” exemptions. Everybody likes to think of just executive, administrative, professional, computer-related, and outside sales as the only ones.

For example, minimum wage and overtime do not apply to any employee engaged in the delivery of newspapers to the consumer. And they also don’t apply to any homeworker engaged in the making of wreaths composed principally of natural holly, pine, cedar, or other evergreens. Who would have known? Overtime also doesn’t apply to any driver employed by an employer engaged in the business of operating taxicabs. Maybe Lyft and Uber should call themselves taxicab companies.

But the often-overlooked exemption I want to talk about here is the “highly compensated” exemption. As salaries have increased, especially in urban markets, it will be easier to fit office workers into this exemption.

A little bit of background on the so-called “HCE.” In 2004, the Department of Labor overhauled the white-collar exemptions and published new regulations. This was the first big overhaul since 1990, when the computer-related exemption was added and the first time the minimum salary requirement had been increased since 1975. Along with these new regulations, the DOL added the HCE. It was originally going to be set with a minimum highly compensated threshold of around $65,000 annually, but even back then that meant that administrative assistants and legal secretaries in New York City and Washington, D.C. may then become exempt because of the salaries in those markets. So, the DOL put the minimum annual compensation at $100,000. In 2020, this was increased to $107,432 annually—not sure why the DOL couldn’t have just picked $107,500 instead. Or $108,000. Or $107,000. No, it is down to the penny.

So, what makes someone exempt as an HCE?

First, the employee has to be paid on a salary basis. The weekly salary has to be at least $684 per week under the current minimum threshold.

Next, the employee’s primary duty must include performing office work and/or non-manual work. In other words, the work has to be of the “white-collar” variety as opposed to the “blue-collar” manual labor.

Then, the employee must “customarily and regularly” perform at least one of the exempt duties of an executive, administrative, or professional employee. You don’t have to do all of the duties in the tests, just one. You can’t rely on the HCE if the exempt duty is only done once in a while. But the one exempt duty need not be the HCE’s primary duty. The HCE just has to do it every week.

Finally, remember that the $107,432 is an amount based upon total annual compensation, not weekly salary alone. This total compensation can include commissions, bonuses, and other cash compensation earned during the year. But you can’t add the value of health insurance and call that part of the total compensation.

Some examples could include paralegals, physician assistants, coordinators, managers, accounting staff, and junior engineers, just to name a few.

The DOL is talking about rolling out some revisions to the white-collar exemptions before the end of the current administration in the White House, so we may see some proposed changes to the HCE. But, if as an employer you have employees earning overtime and making more than $107,432, it may be worth a look.

If you have questions, contact Paul Bittner or any member of Ice Miller’s Workplace Solutions Practice Group. And Paul is always happy to talk about college football and the NHL.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
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