FLSA Salary Exemption

Written by Rebecca Tipton, SHRM-SCP

BMSS HR Advisory
Putting the “Resource” in Human Resource Consulting

Three months have passed since the first update to the FLSA exemption salary thresholds for the Administrative, Professional, Executive, and Highly Compensated Employee categories, which makes it a perfect time to review compliance for this particular aspect of the Fair Labor Standards Act. The Act actually has many requirements primarily categorized as recordkeeping, minimum wage, and overtime. The overtime requirements are the focus of the latest changes as, by default, the FLSA requires employers to provide premium overtime compensation for employees’ time that exceeds 40 hours worked within the defined workweek with certain exemptions. These exemptions are defined as various categories based on the nature of the position or industry. In fact, there are approximately 35 different categories of overtime exemptions under the FLSA, but a few stand out as the most commonly used: Executive, Administrative, Professional, and Highly Compensated Employees. To meet the qualifications for exemption under these most common categories, three conditions must be met, which are referred to as the Duties Test, Salary Test, and Salary Threshold.

Meeting the duties test means that the nature and responsibilities of the position must align with those of the category. The Administrative category is a perfect example of this as, while many positions within an organization can be categorized as “Administrative,” the Administrative Duties Test requires the position to hold a primary duty of performing office or non-manual work related to the general business operations and include the exercise of discretion and independent judgment regarding matters of significance. In other words, while an Office Assistant may spend the majority of their time on office administration, if they do not have discretionary judgment for matters of importance, they should still be classified as non-exempt.

Meeting the salary test is another requirement for the Executive, Administrative, Professional, and Highly Compensated Employee Exemption categories. It is actually a fairly simple question, “Is the employee paid on a salary basis?” This is often misconstrued as unnecessary as long as the employee’s wages are high enough to exceed the weekly and annual amounts identified as the salary threshold. However, a U.S. Supreme Court Case, settled in February of 2023, conflicted with that theory and explicitly stated that the salary test strictly meant that the employee was provided a guaranteed amount of compensation within a defined period, with a week being the minimum allowed period. The employee can certainly earn more than the guaranteed amount, but there has to be a minimum guarantee equal to or above the salary threshold amount.

Meeting the salary threshold is the issue that has been affected by the U.S. Department of Labor’s final rule. The salary threshold is simply the minimum salary amount that will qualify for overtime exemption under the FLSA and is expressed as both a weekly amount and an annual amount. The annual amount recently increased on July 1, 2024 to $107,432 for Highly Compensated Employees and increased to $43,888 for Executive, Administrative, and Professional Employees. Of course, as a reminder, this is scheduled to change again on January 2, 2025 to $151,164 annually for Highly Compensated Employees and to $58,656 annually for Executive, Professional, and Administrative Employees.

Compliance with the FLSA is extremely important as violations can be costly due to back pay issues and assigned penalties in addition to lost time and lawyer fees in addressing the issue. It is certainly permissible to play it safe by categorizing all employees as non-exempt; however, with the right amount of due diligence and careful attention to the FLSA standards, employers can certainly still categorize their employees under the applicable exemption. If you run into any questions or need help navigating the different FLSA exemption categories available or scheduled threshold increases, reach out to BMSS HR Advisory Services at rtipton@bmss.com or (256) 964-9788, or you can visit our website for more information.