Highly Compensated Employee Exemption: Key Rules, Salary Levels, and 2025 Compliance Guide

1. What is the HCE exemption under the FLSA?

The Highly Compensated Employee (HCE) exemption is a “shortcut” variation of the regular white-collar exemptions (executive, administrative and professional) under 29 C.F.R. § 541.601. It was created for workers who are clearly well paid and who perform at least one of the typical exempt duties. Instead of proving the full set of duties, the employer can qualify the employee with fewer elements — but only if all monetary and non-manual requirements are met.

In practice, the HCE exemption is used for: managers with mixed duties, analysts who sometimes supervise, senior sales support roles that are mostly office/non-manual, highly paid coordinators, and hybrid corporate roles that don’t fully meet the executive test every week.

Key idea: high pay + office/non-manual work + at least one exempt duty = possible HCE exemption.

2. Current pay thresholds and why 2025 is confusing

The Department of Labor (DOL) raised the HCE level in 2024 and scheduled another raise for 2025, but parts of the 2024 rule have been challenged in court. As a result, many employers in late 2025 are still using the older federal figure of $107,432 per year with a weekly salary portion (historic 2019 rule). 0

However, the 2024 final rule said the HCE total annual compensation would move to $132,964 (July 1, 2024) and then to $151,164 (January 1, 2025), with at least the standard weekly salary being paid on a salary basis. Because of litigation, employers must check which rule is actually being enforced in their jurisdiction. 1

Important nuance: an employee who does not reach the HCE annual amount might still be exempt under the regular executive/administrative/professional tests, but then the full duties test applies.

3. Core elements of the HCE test

3.1 Salary / total annual compensation

The worker must receive at least the specified weekly salary on a salary basis (no reduction for quality or quantity of work), and the total annual compensation must meet or exceed the HCE threshold. “Total annual compensation” can include commissions, nondiscretionary bonuses and other incentive payments, but at least the weekly minimum must be paid as salary. 2

3.2 Office or non-manual work

HCE is only for employees whose primary duty is office or non-manual work. If the person is doing manual, trade, field, construction, production or “blue-collar” work, HCE does not apply — even if their pay is very high. This is where many employers fail.

3.3 At least one exempt duty

Unlike the full tests, HCE employees only need to “customarily and regularly perform any one or more” of the exempt duties of an executive, administrative or professional employee. Example: if a highly paid operations lead regularly directs the work of two or more employees, that single duty can be enough for the HCE duties part.

4. Nuances employers miss

4.1 Partial-year hires and proration

If the employee starts or ends employment in the middle of the year, the employer may prorate the HCE amount. But the salary basis part must still be respected for the weeks actually worked.

4.2 Catch-up payments

The rules allow employers to make a year-end “catch-up” payment to bring the employee to the HCE annual level. If the payment is not made within the allowed time, the exemption can be lost for the whole year.

4.3 Mixed roles / hybrid work

Corporate structures often use “senior”, “lead” or “principal” titles for people who still do a lot of hands-on work. HCE can help when the person: (a) is highly paid, (b) works mainly in the office and (c) supervises or makes important decisions part of the time. But if the person frequently does manual/field tasks (technicians, site leads, warehouse supervisors on the floor), HCE becomes risky.

4.4 Remote and hybrid workers

Remote work usually satisfies the “non-manual” requirement. The issue is not the location, but the content of the job. If the remote worker mainly performs high-level analysis, client management, policy drafting, budgeting or team direction — HCE fits well. If the remote worker does a high volume of routine, non-discretionary tasks with limited judgment, HCE may fail on the “at least one exempt duty” piece.

4.5 State laws that don’t follow the HCE model

States like California, New York, Washington and Colorado often have their own overtime/salary rules and do not automatically accept the federal HCE shortcut. For multistate employers, the safe approach is to apply the stricter rule for that location.

5. Illustrative “graphic” view

(Use this logic as a chart in your post.)

• Step 1: Is the employee paid at or above the federal HCE annual amount in effect for that year? If no, stop.
• Step 2: Does the employee get at least the weekly salary portion on a salary basis? If no, stop.
• Step 3: Is the employee’s primary duty office/non-manual? If no, stop.
• Step 4: Does the employee customarily and regularly perform at least one exempt duty (supervision, management, high-level administrative work, advanced/professional work)? If yes, HCE likely applies.

6. Quick Guide (English)

Purpose: classify very well-paid office employees as exempt with fewer duty elements.

• Compensation: confirm which level applies in 2025 in your circuit (2019 level $107,432 or 2025 scheduled $151,164).
• Salary basis: pay the weekly minimum every week — no deductions for quality/quantity.
• Work type: office/non-manual as primary duty (no field, no production, no mechanics).
• Duties: show at least one executive/administrative/professional duty done regularly.
• Documentation: job description + payroll records + year-end catch-up if needed.
• Review annually: thresholds can change, especially after litigation.

7. FAQ (English)

1) Is every employee earning over $150,000 automatically exempt?

No. The employee must also perform office/non-manual work and at least one exempt duty. Manual or blue-collar workers stay non-exempt even at high pay. 3

2) Can bonuses and commissions count toward the HCE total?

Yes. Nondiscretionary bonuses, commissions and other incentive payments can count toward the total annual compensation, but the employee must still receive the minimum weekly salary portion on a salary basis.

3) What if the employee falls short of the annual amount?

The employer can make a permitted catch-up payment within the allowed timeframe. If no catch-up is made, the employee may be owed overtime for the entire year.

4) Do state laws override the federal HCE rule?

Yes, when the state sets a higher or stricter standard. In that case, employers must follow the state rule.

5) Does the Helix Energy-type problem still matter for HCE?

Yes. Paying a very high daily or day-rate amount without meeting the salary-basis method can defeat the exemption. Employers should structure HCE pay to meet the salary-basis test first.

6) How often should we recheck the HCE threshold?

Annually — and in 2025 even more frequently, because the 2024–2025 increases are tied to litigation and could change again.

8. Technical / legal base (English)

• Statute: Fair Labor Standards Act, 29 U.S.C. § 201 et seq., overtime exemption at § 213(a)(1).
• Regulation: 29 C.F.R. Part 541, especially § 541.601 (Highly Compensated Employees).
• DOL Guidance: Wage and Hour Division Fact Sheet #17H (revised 2019, updated August 2024). 4
• DOL Overtime Portal: salary-levels page with July 1, 2024 and Jan. 1, 2025 figures (subject to litigation). 5
• Case law: U.S. Supreme Court and circuit decisions reinforcing salary-basis requirements for highly paid employees.

9. Compliance pointer

Because the 2024 rule was challenged, HR and payroll teams should keep two tables: (1) what the DOL says the threshold is, and (2) what courts in their jurisdiction are letting the agency actually enforce in 2025.