FMLA key employee.

What the exception does

FMLA normally guarantees an employee returning from leave their old job or an equivalent one. For a small group of high earners the regulations carve out an exception, and it is much narrower than many employers assume. Under 29 CFR 825.217 a key employee is a salaried, FMLA-eligible employee among the highest paid 10 percent of all employees employed by the employer within 75 miles of the employee’s worksite. Being a key employee never affects the right to take the leave. It affects only whether the employer may refuse to reinstate at the end.

The 10 percent test

The pool is every employee within 75 miles of the worksite, salaried and non-salaried, eligible and ineligible (825.217(c)). Employees are ranked by year-to-date earnings divided by weeks worked, counting weeks in which paid leave was taken. Earnings include wages, premium pay, incentive pay and nondiscretionary and discretionary bonuses; they do not include incentives whose value is determined at a future date, such as stock options, or benefits and perquisites. The determination is made at the time the employee gives notice of the need for leave, and no more than 10 percent of the employer’s employees within 75 miles of the worksite may be key employees. With 60 employees, up to six people can be in the group; with 47, four.

"Salaried" means paid on a salary basis under 29 CFR 541.602, the same definition used for overtime exemptions. An hourly manager who earns more than anyone else is not a key employee.

Substantial and grievous economic injury

Being a key employee is only the first step. To deny restoration, the employer must determine that restoring the employee will cause substantial and grievous economic injury to its operations, not merely that the employee’s absence will (825.218(a)). The employer may consider its ability to replace the employee temporarily or do without them, and, if a permanent replacement was unavoidable, the cost of reinstating. The regulation declines to set a precise test, but says that reinstatement threatening the economic viability of the firm would qualify, as would a lesser injury causing substantial, long-term economic injury. Minor inconveniences and costs in the normal course of business do not. The standard is described as more stringent than the undue hardship test under the ADA.

The employer’s notice duties

An employer that believes it may deny reinstatement must give written notice at the time the employee gives notice of need for leave, or when leave starts if earlier, saying the employee qualifies as a key employee and explaining the possible consequences for reinstatement and health benefits. If it cannot be given immediately because the employer has to work out whether the employee is a key employee, it is given as soon as practicable. An employer that fails to give timely notice loses its right to deny restoration, even if substantial and grievous injury would result (825.219(a)).

Later, when the employer makes a good faith determination that reinstatement will cause such injury, it must notify the employee in writing, in person or by certified mail, that it cannot deny the leave and intends to deny restoration on completion of the leave. The notice must explain the basis for the finding, and if leave has started it must give the employee a reasonable time to return to work (825.219(b)). If the employee does not return in response, health benefits continue and the employer cannot recover its premium costs; the employee’s FMLA rights continue until the employee says they no longer wish to return or the employer actually denies reinstatement. At the end of leave the employee can still ask for reinstatement, and the employer must decide again based on the facts at that time (825.219(c)-(d)).

Interference is separate

Section 825.220 prohibits interfering with FMLA rights, including discouraging leave, and prohibits retaliation. Using a key-employee label to discourage someone from taking leave is interference, and an employer may be liable for lost compensation and benefits, other actual monetary losses and equitable relief including reinstatement.

Worked example

A software company has 60 employees within 75 miles of its main office. Six at most can be key employees. A salaried, FMLA-eligible engineering director ranked fourth by weekly pay asks for leave on November 2, 2026. She is among the highest paid 10 percent, so she is a key employee. The company must give her written key-employee notice now. If it never does, it loses the right to deny restoration. If it does and later finds, in good faith, that rehiring her would threaten the company’s viability, it must notify her in person or by certified mail with its reasons. A fifth-ranked hourly employee with the same pay would not qualify.

Sources

Sources opened and read November 2, 2026.

• eCFR: 29 CFR 825.217 Key employee, general rule (current through October 29, 2026) (read November 2, 2026)
• eCFR: 29 CFR 825.218 Substantial and grievous economic injury (current through October 29, 2026) (read November 2, 2026)
• eCFR: 29 CFR 825.219 Rights of a key employee (current through October 29, 2026) (read November 2, 2026)
• eCFR: 29 CFR 825.220 Protection for employees who request leave (current through October 29, 2026) (read November 2, 2026)