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Small Entity
Compliance Guide
To the Fair Labor Standards Act’s
Exemptions
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Contents
MINUMUM WAGE AND OVERTIME – THE BASICS........................................................................................ 2
CLAIMING AN EXEMPTION – THE THREE BASIC TESTS ................................................................................. 3
THE SALARY BASIS TEST ................................................................................................................................ 5
THE SALARY LEVEL TEST ................................................................................................................................ 7
Standard salary level ..................................................................................................................................... 7
Special salary levels ....................................................................................................................................... 7
Total annual compensation requirement for highly compensated employees ........................................... 7
Nondiscretionary bonuses and incentive payments ..................................................................................... 7
THE DUTIES TESTS ......................................................................................................................................... 8
Executive exemption ..................................................................................................................................... 9
Administrative exemption ............................................................................................................................ 9
Professional exemption .............................................................................................................................. 10
Learned professionals ......................................................................................................................... 10
Creative professionals ......................................................................................................................... 10
Employees practicing law or medicine ............................................................................................... 11
Outside sales exemption ............................................................................................................................. 11
Computer employee exemption ................................................................................................................. 11
Highly compensated employees ................................................................................................................. 12
ADDITIONAL GUIDANCE .............................................................................................................................. 12
This publication is for general information and is not to be considered in the same light as
official statements of position contained in the regulations.
MINUMUM WAGE AND OVERTIME – THE BASICS
The Fair Labor Standards Act (FLSA) is the federal labor law that provides basic workplace
protections to most workers in the U.S., and guarantees them at least the federal minimum wage
for every hour they work, and overtime, at one and-one-half times their regular rates of pay, for
hours they work beyond 40 in a workweek. The FLSA is enforced by the U.S. Department of
Labor’s Wage and Hour Division, and covers more than 143 million workers at more than 9.8
million establishments nationwide.
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The FLSA does not provide an exemption from these requirements specifically for small
businesses. Generally, the FLSA applies to employees of enterprises that have an annual gross
volume of sales made or business done totaling $500,000 or more, and to employees individually
covered by the law because they are engaged in interstate commerce or in the production of
goods for commerce. In addition, employees of certain entities are covered by the FLSA
regardless of the amount of gross volume of sales or business done. These entities include:
hospitals; businesses providing medical or nursing care for residents; schools (whether operated
for profit or not-for-profit); and public agencies. The FLSA creates a level playing field for
businesses nationwide by setting a floor on wages and a premium for excess work. Individual
cities and states, however, may have stronger wage and hour protections than the minimum
federal standards established under the FLSA. If a state or city establishes a more protective
standard than the provisions of the FLSA, the higher standard applies in that state or city.
EXCEPTIONS TO THE RULE – WHO IS EXEMPT?
While the FLSA applies to the majority of employees in the United States, it does allow
employers to claim exemptions from its requirements for certain employees whose jobs meet
specific criteria.
Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime
requirements for employees employed as bona fide executive, administrative, professional, and
outside sales employees. Section 13(a)(1) and Section 13(a)(17) also exempt certain employees
in computer-related occupations. These exemptions are defined in the Department’s regulations
located at 29 CFR Part 541 (hereinafter the “Part 541 exemptions”).
To qualify for one of these exemptions, employees generally must meet certain tests regarding
their job duties and be paid a certain minimum salary. Job titles alone do not determine exempt
status, and neither does the receipt of a particular salary. In order for an exemption to apply, an
employee’s specific job duties and earnings must meet all of the applicable requirements. It is
important to note that simply paying an employee a salary does not relieve an employer of
minimum wage and overtime obligations to that employee. Unless they meet the criteria of a
specific exemption, employees covered by FLSA protections who are paid a salary are still due
overtime if they work more than 40 hours in a week.
This guide provides an overview of each of the Part 541 exemptions, and describes the basic
tests and requirements to qualify for each. The specific salary levels listed below apply
beginning on January 1, 2020, which is the effective date of the revised regulations
implementing the exemptions.
If you have specific questions about any of these exemptions, please contact the Wage and Hour
Division (WHD) at 866-4US-WAGE for assistance, or visit us online at www.dol.gov/whd.
CLAIMING AN EXEMPTION - THE THREE BASIC TESTS
For an employer to claim anexemption for a particular employee, three tests generally need to be
satisfied:
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(1) PAYMENT ON A SALARY BASIS: The employee must be paid a
predetermined and fixed salary that is not subject to reduction because of
variations in the quality or quantity of work performed;
(2) PAYMENT OF A MINIMUM SALARY LEVEL: The amount of salary paid
must meet a specified minimum amount; and
(3) A DUTIES TEST: The employee’s job duties must primarily involve those
associated with exempt executive, administrative, professional, outside sales, or
computer employees.
Basic Requirements for Exemption:
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Exemption
Salary Level Test
Salary Basis Test
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Duties Test
Executive
• At least $684 /
week
($35,568 / year)
• At least 90% of the salary level ($616 / week) must
be paid on a “salary” basis
• Up to 10% ($68 / week) may be satisfied with
nondiscretionary bonuses or incentive payments
• The employee’s “primary
duty” must be that of an
exempt executive
employee, as described in
the “Duties Tests”
section of this guide
Administrative
• At least $684 /
week
($35,568 / year)
• “Academic
administrative
personnel” may
qualify with a
salary at least
equal to the
entry salary for
teachers at their
educational
establishment.
• At least 90% of the salary level ($616 / week) must
be paid on a “salary” or “fee” basis
• Up to 10% of the salary level ($68 / week) may be
satisfied with nondiscretionary bonuses or incentive
payments
• The employee’s “primary
duty” must be that of an
exempt administrative
employee, as described in
the “Duties Tests”
section of this guide
Professional
• At least $684 /
week
($35,568 / year);
• Salary level test
does not apply to
doctors, lawyers,
or teachers
• At least 90% of the salary level ($616 / week) must
be paid on a “salary” or “fee” basis
• Up to 10% of the salary level ($68 / week) may be
satisfied with nondiscretionary bonuses or incentive
payments
• These requirements do not apply for doctors,
lawyers, and teachers
• The employee’s “primary
duty” must be that of an
exempt professional
employee, as described in
the “Duties Tests”
section of this guide
Outside Sales
• Does not apply
• Does not apply
• The employee’s “primary
duty” must be that of an
exempt outside sales
employee, as described in
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Note that for simplicity, the Department is rounding to the nearest whole dollar in this table.
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the “Duties Tests”
section of this guide
Computer
• At least $684 /
week
($35,568 / year),
or at least $27.63
/ hour
• At least 90% of the salary level ($616 / week) must
be paid on a “salary” or “fee” basis unless the
employee is paid on an hourly basis and receives at
least $27.63 / hour.
• Up to 10% of the salary level ($68 / week) may be
satisfied with nondiscretionary bonuses or incentive
payments
• The employee’s “primary
duty” must be that of an
exempt computer
employee, as described in
the “Duties Tests”
section of this guide
Highly
compensated
employees
• $107,432 per
year in total
compensation,
including
payment of at
least $684 /
week
• 100% of the standard salary level ($684 / week)
must be paid on a “salary” or “fee” basis
• The remainder of the total annual compensation
requirement may be paid in nondiscretionary
bonuses or incentive payments (including
commissions)
• The employee’s “primary
duty” must be office or
non-manual work
• Must “customarily and
regularly” perform any
one or more of the
exempt duties or
responsibilities of an
executive, administrative
or professional employee,
as described in the
“Duties Tests” section of
this guide
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This chart does not include the special salary levels applicable to U.S. territories or the special
“base rate” for the motion picture producing industry.
THE SALARY BASIS TEST
Generally, for an employer to claim a Part 541 exemption from minimum wage and overtime
requirements for an employee, that employee must be paid on a salary basis.
Being paid on a “salary basis” means an employee regularly receives a predetermined amount of
money each pay period on a weekly, or less frequent, basis. The predetermined amount cannot
be reduced because of variations in the quality or quantity of the employee’s work. Generally,
an exempt employee must receive at least the required weekly salary amount (discussed in more
detail below under “the salary level test”) for any week in which the employee performs any
work, regardless of the number of days or hours worked. Exempt employees do not need to be
paid for any workweek in which they perform no work.
Deductions from pay are permissible only:
• when an exempt employee is absent from work for one or more full days for personal
reasons other than sickness or disability;
• when an exempt employee is absent from work for absences of one or more full days due
to sickness or disability if the deduction is made in accordance with a bona fide plan,
policy, or practice of providing paid sick leave;
• to offset amounts employees receive as jury or witness fees, or for military pay;
• for penalties imposed in good faith for infractions of safety rules of major significance; or
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• for unpaid disciplinary suspensions of one or more full days imposed in good faith for
workplace conduct rule infractions.
See 29 CFR 541.602.
An employer is not required to pay the full salary in the initial or final week of employment, or
for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave
Act. If the employer makes improper deductions from an employee’s predetermined salary, that
employee is not paid on a “salary basis.” If the employee is ready, willing and able to work,
deductions may not be made for time when work is not available.
The salary basis test does not apply to outside sales employees, teachers, and employees
practicing law or medicine.
“Fee Basis”
Administrative, professional, and computer employees may be paid on a “fee basis” rather than
on a salary basis. If the employee is paid an agreed sum for a single job, regardless of the time
required for its completion, the employee will be considered to be paid on a “fee basis.” A fee
payment is generally paid for a unique job, rather than for a series of jobs repeated a number of
times and for which identical payments repeatedly are made. To determine whether the fee
payment meets the minimum salary level requirement, the test is to consider the time worked on
the job and determine whether the payment is at a rate that would amount to at least $684 per
week if the employee worked 40 hours. For example, an artist paid $500 for a picture that took
20 hours to complete meets the minimum salary requirement since the rate would result in
$1,000 if 40 hours were worked.
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THE SALARY LEVEL TEST
Standard salary level
Generally, an employee must be paid at least $684 per week to qualify for one of the Part 541
exemptions. Exempt computer employees may be paid at least $684 per week, or on an hourly
basis of at least $27.63 an hour.
The salary level test does not apply to outside sales employees, teachers, and employees
practicing law or medicine. Academic administrative employees may qualify for exemption
either by satisfying the standard salary level test or, alternatively, being paid on a salary basis at
a rate at least equal to the entrance salary for teachers in the educational establishment by which
the employee is employed.
Special salary levels
The regulations provide for special salary levels for certain U.S. territories and an updated base
rate for employees in the motion picture producing industry. A special salary level of $455 per
week applies to Puerto Rico, the U.S. Virgin Islands, Guam, and the Commonwealth of the
Northern Mariana Islands. A special salary level of $380 per week applies to American Samoa.
The regulations also establish a special “base rate” threshold for employees in the motion picture
producing industry. The base rate is $1,043 per week, or a prorated amount based on the number
of days worked.
Total annual compensation requirement for highly compensated employees
Employees who receive total annual compensation of at least $107,432, referred to as “highly
compensated employees” (HCEs), are exempt from the minimum wage and overtime
requirements of the FLSA if they meet a more relaxed duties test than is required for employees
paid the standard or special salary levels (the HCEs duties test is discussed below in the “Duties
Tests” section of this guide). Nondiscretionary bonuses and incentive payments (including
commissions) may be counted toward the $107,432 HCEs total annual compensation
requirement, but the employer must pay at least the full standard salary level of $684 per week
on a salary or fee basis to qualify for this exemption. If an employee’s total compensation in a
given annual period fails to meet the $107,432 threshold, an employer may make a “catch-up”
payment within one month of the end of the annual period. Any such catch-up payment counts
only toward the prior year’s total annual compensation. If such a catch-up payment is not made
within the timeframe allotted, the exemption is lost and overtime premium pay must be paid in
any week the employee worked more than 40 hours.
Nondiscretionary bonuses and incentive payments
Employers may use nondiscretionary bonuses and incentive payments (including commissions)
to satisfy up to 10 percent of the standard or special salary levels. Thus, for the standard salary
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level, employers may use such payments to satisfy up to $68 of the $684 per week threshold, but
must still pay at least $616 per week on a salary basis.
For employers to credit these payments toward the salary level test, they must be paid on an
annual or more frequent basis. The employer may use any 52-week period, such as a calendar
year, a fiscal year, or an anniversary of the hire year. If, by the end of the 52-week period, the
sum of the salary paid plus the nondiscretionary bonuses and incentive payments (including
commissions) paid does not equal the required salary level for the 52-week period ($35,568 for
the standard salary level for a full-year worker), the employer may make a “catch-up” payment
to achieve the required level within one pay period of the end of the 52-week period. Any such
“catch-up” payment counts only toward the prior year’s salary, not toward the salary amount
during the 52-week period in which it was paid. If such a catch-up payment is not made within
the timeframe allotted, the exemption is lost and overtime premium pay must be paid in any
week the employee worked more than 40 hours.
Nondiscretionary bonuses and incentive payments (including commissions) are forms of
compensation promised to employees to induce them to work more efficiently or to remain with
the company. Examples may include individual or group production bonuses, and bonuses for
quality and accuracy of work. Incentive payments, including commissions, are also considered
non-discretionary as such payments are generally based on a prior contract or understanding, and
employees generally have a contract right to the commission promised.
By contrast, discretionary bonuses are generally paid without prior contract, promise, or
announcement, and the decision to provide the bonus and the payment amount is at the
employer’s sole discretion. An example would be an “on-the-spot” award made without
announcement and at the employer’s sole discretion (e.g., an unannounced year-end bonus).
Discretionary bonuses cannot be used to satisfy any part of the salary level requirement.
As noted above, employees who are exempt under the HCEs test must receive at least the
standard salary amount ($684 per week) on a salary or fee basis. The HCEs test does not permit
any portion of this amount to be satisfied by nondiscretionary bonuses or incentive payments.
Thus, HCEs must receive the full standard salary amount each week on a salary or fee basis.
THE DUTIES TESTS
To qualify for any of the Part 541 exemptions, employees must meet certain tests regarding their
job duties. The regulations establish separate duties requirements for executive, administrative,
professional, outside sales, and computer employees, respectively.
Most employees who are exempt under the while collar exemptions are subject to the standard
duties test. Under the standard duties test, an employee’s primary duty must be that of an
exempt executive, administrative, or professional employee. “Primary duty” means the
principal, main, major, or most important duty that the employee performs. Determination of an
employee’s primary duty must be based on all the facts in a particular case, with the major
emphasis on the character of the employee’s job as a whole.
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Certain employees can also qualify for exemption under the special test for HCEs. As discussed
above, this test applies only to employees who receive total annual compensation of $107,432,
including at least $684 per week on a salary or fee basis. Under the HCEs duties test, the
employee’s primary duty must still consist of office or non-manual work, but the employee need
only “customarily and regularly” perform one of the exempt duties of a bona fide executive,
administrative, or professional employee, as described in the regulations.
The duties requirements for each of the exemptions are described below in greater detail.
Executive exemption
To qualify for the executive employee exemption under the standard test, all of the following job
duties requirements must be satisfied:
• The employee’s primary duty must be managing the enterprise in which the employee is
employed, or managing a customarily recognized department or subdivision of the
enterprise;
• The employee must customarily and regularly direct the work of at least two or more
other full-time employees or their equivalent (for example, one full-time and two half-
time employees are equivalent to two full-time employees); and
• The employee must have the authority to hire or fire other employees, or the employee’s
suggestions and recommendations as to the hiring, firing, advancement, promotion or any
other change of status of other employees must be given particular weight.
Administrative exemption
To qualify for the administrative employee exemption under the standard test, all of the
following duties requirements must be satisfied:
• The employee’s primary duty must be the performance of office or non-manual work
directly related to the management or general business operations of the employer or the
employer’s customers; and
• The employee’s primary duty must include the exercise of discretion and independent
judgment with respect to matters of significance.
Academic administrative personnel whose primary duty is performing administrative functions
directly related to academic instruction or training in an educational institution, such as
principals and vice-principals responsible for the operation of an elementary or secondary
school, department heads at institutions of higher education, academic counselors who perform
work such as administering school testing programs, assisting students with academic problems,
and advising students concerning degree requirements, and others with similar responsibilities,
are eligible for a special alternative salary level that does not apply to employees outside of an
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educational institution. These academic administrative personnel are exempt from the FLSA’s
minimum wage and overtime requirements if they are paid at least as much as the entrance salary
for teachers at their educational establishment.
Professional exemption
Several different kinds of “professional” employees may qualify for the professional employee
exemption. These include “learned professionals,” “creative professionals,” teachers, and
employees practicing law or medicine.
Learned professionals
To qualify as a “learned professional” under the standard test, all of the following duties
requirements must be satisfied:
• The employee’s primary duty must be the performance of work requiring advanced
knowledge, defined as work which is predominantly intellectual in character and which
includes work requiring the consistent exercise of discretion and judgment;
• The advanced knowledge must be in a field of science or learning, including law,
medicine, theology, accounting, actuarial computation, engineering, architecture,
teaching, various types of physical, chemical and biological sciences, pharmacy, and
other occupations that have a recognized professional status and are distinguishable from
the mechanical arts or skilled trades where the knowledge could be of a fairly advanced
type, but is not in a field of science or learning; and
• The advanced knowledge must be customarily acquired by a prolonged course of
specialized intellectual instruction, which means specialized academic training is a
standard prerequisite for entry into the profession.
Creative professionals
To qualify for the creative professional employee exemption under the standard test, the
employee’s primary duty must be the performance of work requiring invention, imagination,
originality, or talent in a recognized field of artistic or creative endeavor. This includes such
fields as music, writing, acting, and the graphic arts.
Teachers
Teachers are exempt if their primary duty is teaching, tutoring, instructing, or lecturing in the
activity of imparting knowledge, and if they are employed and engaged in this activity as a
teacher in an educational establishment. Exempt teachers include, but are not limited to, regular
academic teachers; kindergarten or nursery school teachers; teachers of gifted or disabled
children; teachers of skilled and semi-skilled trades and occupations; teachers engaged in
automobile driving instruction; aircraft flight instructors; home economics teachers; and vocal or
instrument music teachers.
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Employees practicing law or medicine
An employee holding a valid license or certificate permitting the practice of law or medicine is
exempt if the employee is actually engaged in such a practice. An employee who holds an
academic degree for the general practice of medicine is also exempt if they are engaged in an
internship or resident program for the profession.
Outside sales exemption
To qualify for the outside sales employee exemption, all of the following duties requirements
must be satisfied:
• The employee’s primary duty must be making sales or obtaining orders or contracts for
services or for the use of facilities for which a consideration will be paid by the client or
customer. “Sales” includes any sale, exchange, contract to sell, consignment for sale,
shipment for sale, or other disposition. It includes the transfer of title to tangible
property, and in certain cases, of tangible and valuable evidences of intangible property;
and
• The employee must be customarily and regularly engaged away from the employer’s
place or places of business.
Computer employee exemption
To qualify for the computer employee exemption, the following duties requirements must be
satisfied:
• The employee must be employed as a computer systems analyst, computer programmer,
software engineer or other similarly skilled worker in the computer field; and
• The employee’s primary duty must consist of:
1) The application of systems analysis techniques and procedures, including consulting
with users, to determine hardware, software or system functional specifications;
2) The design, development, documentation, analysis, creation, testing or modification
of computer systems or programs, including prototypes, based on and related to user
or system design specifications;
3) The design, documentation, testing, creation or modification of computer programs
related to machine operating systems; or
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4) A combination of the aforementioned duties, the performance of which requires the
same level of skills.
Highly compensated employees
An employee with a primary duty of office or non-manual work who meets the HCEs
compensation requirements ($107,432 per year in total annual compensation, with at least $684
per week on a salary or fee basis) is exempt if the employee customarily and regularly performs
at least one of the exempt duties of a bona fide executive, administrative or professional
employee, as described in the regulations. An employee who performs such exempt duties only
on an isolated or occasional basis will not satisfy this duties requirement.
ADDITIONAL GUIDANCE
The Department has issued additional compliance assistance materials to help employers,
including small entities, understand the changes to the Part 541 exemption regulations. This
includes detailed guidance for specific sectors, including higher education and non-profit
organizations. These materials are available at: www.dol.gov/whd.
This publication is for general information and is not to be considered in the same light as
official statements of position contained in the regulations.
