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May 11, 2010
Special Federal Rule for Highly Compensated Employees

In a BLR webinar titled "Reducing Overtime Costs: What You Legally Can—and Can't—Do to Keep Workers at Their Straight-Time Rates," Laura P. Worsinger, Esq., explained that federal regulations now include a special, streamlined rule for highly paid employees.

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Under this rule, employees paid $100,000 or more annually, including a guaranteed salary of at least $455 per week, and performing "non-manual work" are exempt--provided that they "customarily and regularly" perform identifiable executive, administrative, or professional duties.

Keep in mind: Loan officers or others who work on straight commission, no matter how highly paid, would not qualify. Also, if a highly paid loan officer receives a guaranteed salary of $455 a week or more, that individual must also perform executive or administrative duties on a customary or regular basis to qualify for this special exemption.

The California Disconnect

The $100,000 rule makes it much simpler for employers in states other than California (where the FLSA applies) to determine who qualifies for overtime:

  • In California regardless of the compensation level, both quantity and quality apply. A California employee must spend at least 50 percent of his or her time performing what are considered "exempt" duties in order to "fit" into an exempt category.
  • As a result, a California sales manager might be in "sole charge" of a department, earn a substantial base salary, with total compensation exceeding over $100,000 annually, but not meet the duties test in order to qualify as an exempt manager. The sales manager must spend most of the time actually performing exempt duties, and selling loans does not qualify as an exempt duty.

Laura P. Worsinger, Esq. is Of Counsel with the Los Angeles office of Dykema Gossett PLLC. She has broad counseling and litigation experience and specializes in the defense of employers in individual and class actions involving wage and hour violations, misclassification, discrimination, wrongful termination, and other employment-related proceedings. She can be contacted at lworsinger@dykema.com.

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