In July 2019, the U.S. Department of Labor’s Wage and Hour Division (WHD) issued Opinion Letter FLSA2019-8 addressing whether paralegals are exempt from minimum wage and overtime requirements under Section 13(a)(1) of the Fair Labor Standards Act (FLSA). Previously, in opinion letters issued in 1998 and 2005, the WHD had concluded that certain paralegals did not qualify for the administrative exemption mainly because they had not exercised “discretion and independent judgment” with respect to matters of significance—an essential element of the FLSA’s exemption for administrative employees. Unlike the 1998 and 2005 opinion letters, the paralegals at issue in the July 2019 opinion letter made more than $100,000 per year and, as a result, potentially qualified for the highly compensated employee exemption.
Ultimately, the WHD concluded that the paralegals described in the July 2019 opinion letter qualified as exempt under the highly compensated employee exemption even if they did not exercise discretion and independent judgment with respect to matters of significance. This opinion letter shows how the highly compensated employee exemption interacts with the more common white-collar exemptions, such as the executive, administrative, and professional exemptions, and could be useful guidance for employers considering the classification of employees earning more than $100,000 per year in compensation.
The FLSA Exemptions at Issue
FLSA Section 13(a)(1) grants an exemption from minimum wage and overtime pay requirements to any employee employed in a bona fide executive, administrative, or professional capacity. Each of these exemptions has a minimum salary requirement and carries its own salary and job duties test.
For example, an employee is exempt under the administrative exemption if (1) the employee is “compensated on a salary or fee basis at a rate of not less than $455 per week,” (2) the employee’s primary duty is “office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers,” and (3) the primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
The FLSA regulations provide an additional exemption for a “highly compensated employee.” To satisfy the highly compensated employee exemption, the employee must meet the following standard: (1) the employee’s “primary duty includes performing office or non-manual work,” (2) the employee receives total annual compensation of at least $100,000, and (3) the employee “customarily and regularly performs one or more exempt duties more than occasionally. (In March 2019, the Department of Labor announced a Notice of Proposed Rulemaking that would increase the standard salary level for exemption and the total annual compensation amount for highly compensated employees.)
In other words, if an employee satisfies elements (1) and (2) of the highly compensated employee exemption, the employee must satisfy only one of the exempt duties of the executive, administrative, or professional exemptions to be exempt from the minimum wage and overtime requirements.
“One-Duty” Requirement of the Highly Compensated Employee Exemption
In considering the application of the highly compensated employee exemption, the July 2019 opinion letter highlights the “relaxed standard” inherent in the highly compensated exemption: “the employee need only perform one or more exempt duties more than occasionally . . . . [T]his exempt duty need not be the employee’s ‘primary duty’” (emphasis added). The WHD explained that an “exempt duty is more than occasional if it is performed normally and recurrently every workweek, but not if it is an isolated or one-time task.”
After identifying the applicable test, the opinion letter concluded that the paralegals were exempt under the highly compensated employee exemption because “all of their duties are non-manual,” “they receive total annual compensation of at least $100,000,” and they “customarily and regularly perform at least one exempt duty of an administrative employee”—such as budgeting, auditing, assisting with finance, or assisting with legal and regulatory compliance.
Key Takeaways
The July 2019 opinion letter confirms that employees earning more than $100,000 may qualify as exempt under the FLSA’s highly compensated employee exemption even if they do not satisfy all of the job duties tests required for the executive, administrative, or professional exemptions. For employers in industries where automation, technology, or other market demands have impacted the supervisory responsibilities or independent discretion and judgment of employees in traditionally exempt positions, the highly compensated employee exemption might be a useful alternative exemption for employees with total annual compensation of at least $100,000.
