FLSA Exempt Employee Salary Threshold Requirements

Federal Salary Threshold Overview

The Fair Labor Standards Act requires that employees classified as exempt from overtime under the executive, administrative, and professional (EAP) exemptions must be paid on a salary basis at or above a minimum threshold established by the Department of Labor. The salary threshold has been the subject of significant regulatory activity in recent years.

Employers must monitor DOL rulemaking on salary thresholds, as changes can affect the exempt status of large numbers of employees. When thresholds increase, employers must either raise salaries to meet the new minimum or reclassify affected employees as non-exempt and pay them overtime.

Duties Tests for Exemption

Meeting the salary threshold alone does not establish exempt status. Employees must also satisfy the applicable duties test. The executive exemption requires that the employee's primary duty is managing the enterprise or a recognized department, they customarily direct the work of two or more full-time employees, and they have authority to hire or fire or their recommendations carry particular weight.

The administrative exemption requires that the employee's primary duty is the performance of office or non-manual work directly related to management or general business operations, and includes the exercise of discretion and independent judgment on matters of significance. The professional exemption covers employees whose primary duty requires advanced knowledge in a field of science or learning customarily acquired by prolonged specialized instruction.

State Salary Thresholds

Several states have established their own salary thresholds that exceed the federal minimum. California requires exempt employees to earn a monthly salary of at least twice the state minimum wage for full-time employment. New York has varying thresholds depending on the region and employer size. Washington State has a salary threshold tied to the state minimum wage multiplied by specified factors.

Employers with employees in multiple states must comply with the higher of the federal or state threshold in each jurisdiction. Failure to meet the applicable threshold results in the employee being non-exempt regardless of the duties they perform.

Highly Compensated Employee Exemption

The FLSA provides a streamlined duties test for highly compensated employees (HCEs) who earn above a higher annual compensation threshold. HCEs need only customarily and regularly perform at least one of the exempt duties of an executive, administrative, or professional employee to qualify for exemption, rather than satisfying the full standard duties test.

The HCE threshold has been subject to the same regulatory changes as the standard salary threshold. Employers should verify the current HCE threshold and ensure that employees classified under this exemption meet both the compensation and minimal duties requirements.

Salary Basis Requirements

Exempt employees must be paid their full salary for any workweek in which they perform any work, with limited exceptions. Improper deductions from an exempt employee's salary can destroy the exemption for all employees in the same classification working for the same manager at the same location. Permissible deductions include absences of one or more full days for personal reasons, full-day absences for sickness under a bona fide plan, FMLA leave deductions, and disciplinary suspensions of one or more full days for workplace conduct rule violations.