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Understanding the Highly Compensated Employee (HCE) Classification Under the FLSA

The Fair Labor Standards Act (FLSA) classifies certain employees as Highly Compensated Employees (HCEs), a designation that has specific criteria and implications. This article is intended to help you understand what makes an employee an HCE and provide examples to clarify the classification.

It's important to note that employees are rarely actually classified as HCEs. This classification is often misunderstood or overlooked, leading to fewer employees being designated as such despite meeting some of the criteria.


Who is an HCE?

An HCE is a managerial employee who:

    • Directs the work of at least two full-time employees.
    • Does not have the authority to hire or fire other employees.
    • Does not meet the full job duties test for the executive exemption under the FLSA.


Examples of Employees Who May Not Qualify for Full Executive Exemption

    • Administrative Employees: These employees perform tasks related to the management or general business operations but lack sufficient discretion and independent judgment due to established procedures.
    • Paralegals, Accountants, Junior Engineers, Executive Assistants: These roles involve important duties but often don't meet the full criteria for executive exemption due to limitations in decision-making authority or the nature of their work.


Criteria for HCE Classification

To qualify as an HCE, an employee's primary duty must include performing office or non-manual work. Additionally, the employee must regularly perform at least one of the responsibilities of an executive, administrative, or professional employee, such as:

    • Directing the work of two or more full-time employees.
    • Having the authority to hire or fire employees, or at least make recommendations on such matters.


Key Takeaways

The HCE classification is designed to encompass certain high-earning employees who perform significant duties but do not meet all the criteria for an executive exemption. Understanding this classification helps ensure compliance with FLSA regulations and proper employee categorization.

By recognizing the nuances of the HCE classification, employers can better manage their workforce and employees can better understand their rights and responsibilities under the FLSA.

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This blog is for educational and/or informational purposes only and does not constitute tax, financial, or legal advice.