Two federal salary levels decide whether an employee can be exempt from overtime.
The standard salary level and the highly compensated employee level are the dollar tests in the FLSA white-collar exemptions, and each works alongside tests on how pay is structured and what the employee does.
The basics for employers.
A plain-English summary. This is general information, not legal advice, and the rules change, so check the current text.
Standard Level
$684 per week, or $35,568 a year, must be paid on a salary or fee basis to use the executive, administrative or professional exemption.
Highly Compensated Level
$107,432 in total annual compensation, including at least $684 per week paid on a salary or fee basis, with a shorter duties test.
Salary Basis
The employee must receive a predetermined amount each pay period that is not reduced because of the quality or quantity of work, with limited exceptions.
How it plays out.
The salary basis test is as important as the amount. An exempt employee who is docked pay for partial-day absences or reduced hours because work is slow can lose the exemption for the pay periods in which the improper deductions occur.
Nondiscretionary bonuses and incentive payments can satisfy up to 10 percent of the standard salary level if they are paid at least annually. Discretionary bonuses do not count toward the level, and an employer must be able to show which category a payment falls in.
The highly compensated test is not a free pass. The employee must still regularly perform at least one exempt duty, and the annual total can include commissions and nondiscretionary bonuses, with any shortfall made up in a final payment.
Where this shows up in your plan.
The salary level is measured in pay, and the way an employer funds benefits does not change the dollars that count. An employee who waives coverage and receives cash should be tracked so the payment is classified correctly for the regular rate if the employee later becomes nonexempt.
Employees near the level are where classification and benefit class meet. A raise to reach the level can change premium shares, and a decision to reclassify can change eligibility, so both should be decided together.
Keep the salary basis and level test in the same file as the benefit class assignment for each exempt employee. When the level changes, one review covers both.
Setting it up.
Compare Pay to the Level. List every exempt employee and compare weekly pay to $684.
Review Deductions. Check payroll for any docking that could break the salary basis.
Classify Bonus Pay. Record which bonuses are nondiscretionary and when they are paid.
Link to Benefit Class. Note the eligibility class next to the classification for each exempt role.
Mistakes to avoid.
Docking Exempt Pay. Improper deductions can cost the exemption for the affected periods.
Counting Discretionary Bonuses. Only nondiscretionary payments count toward the level, up to the limit.
Assuming Salary Is Enough. The duties test still has to be met.
Laws and Rules Referenced
Salary level, 29 CFR 541.600 — The standard salary level test.
Salary basis, 29 CFR 541.602 — Predetermined pay, permitted deductions and the nondiscretionary bonus credit.
Highly compensated employees, 29 CFR 541.601 — The total annual compensation test.
Department of Labor, Overtime — Agency guidance on the exemptions.
Quick answers.
Short answers to what employers ask most. This is general information, not legal or tax advice.
What is the standard salary level?
$684 per week, or $35,568 a year.
What is the highly compensated level?
$107,432 in total annual compensation, including at least $684 per week on a salary or fee basis.
Can bonuses count toward the level?
Nondiscretionary bonuses and incentive payments can count for up to 10 percent of the standard level if paid at least annually.
Does paying above the level make an employee exempt?
No. The salary basis and duties tests also apply.
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