Navigating the FLSA’s Impact on Highly-Compensated Employees: What Business Owners Need to Know

“NOTICE: On August 30, 2023, the Department of Labor (Department) announced the issuance of a Notice of Proposed Rulemaking (NPRM), Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees. The NPRM proposes to update and revise the regulations issued under section 13(a)(1) of the Fair Labor Standards Act (FLSA), implementing the exemption from minimum wage and overtime pay requirements for executive, administrative, and professional employees. Proposed revisions include increasing the standard salary level and the highly compensated employee total annual compensation threshold, as well as providing an automatic updating mechanism that would allow for the timely and efficient updating of all the thresholds to reflect current earnings data.”
Taken from U.S. Department of Labor Website

As a business owner, it’s crucial to stay updated on employment regulations to ensure your company operates within the boundaries of the law. One of the key regulations you should be aware of is the Fair Labor Standards Act (FLSA), which dictates minimum wage and overtime pay requirements for employees in the United States. However, there are exemptions, particularly regarding highly compensated workers, that can affect how you compensate your employees.

Highly Compensated Employees: Under FLSA, highly compensated employees are those who earn a total annual compensation of $107,432 or more. To qualify for exemption from minimum wage and overtime pay, highly compensated employees must meet the following criteria:

  1. Earnings: They earn at least $684 per week on a salary or fee basis.
  2. Job Duties: Their primary duty involves performing office or non-manual work.
  3. Exempt Duties: They customarily and regularly perform at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee.

This means that even if an employee doesn’t meet all the requirements for a standard exemption, they can still be classified as an exempt highly compensated employee if they meet these criteria.

Total Annual Compensation: The required total annual compensation of $107,432 or more must include at least $684 per week paid on a salary or fee basis. This compensation can also include commissions, nondiscretionary bonuses, and other nondiscretionary compensation earned during a 52-week period. However, it doesn’t include credit for board, lodging, insurance payments, or contributions to retirement plans or fringe benefits. In addition, the weekly salary amount of $684 must be paid in full, and employers can’t use bonuses or commissions to fulfill any portion of this weekly standard.

Make-up Payments and Prorating: If employees work only part of the year, there are special rules for prorating the annual compensation. Employers can make a single lump-sum make-up payment to meet the required annual amount at the end of the year. This rule also applies to employees who terminate before the year ends.

Customarily and Regularly: The term “customarily and regularly” means that an employee’s exempt duties should be performed more than occasionally but not necessarily constantly. It includes work that is normally and recurrently performed every workweek but does not cover isolated or one-time tasks.

Understanding the FLSA regulations related to highly compensated employees is vital to ensure your business complies with the law. Keep an eye on the proposed changes from the Department of Labor, and make sure your compensation and job roles align with the existing rules. If you have any questions or concerns about these regulations, it’s advisable to consult with legal experts or HR professionals who can provide guidance tailored to your specific business needs.

Leave a Reply

Your email address will not be published. Required fields are marked *