The U.S. Department of Labor has published its Final Rule increasing the minimum salary that must be paid to employees classified as exempt under the executive, administrative, and professional exemptions to no less than $913 per week ($47,476 per year) effective December 1, 2016. This is significantly higher than the $41,600 minimum annual salary ($800 per week) currently required by California law for an employee to retain exempt status.
By way of background, as a default rule, all employees are presumed to be “non-exempt,” that is, eligible to earn overtime pay, and, in California, eligible for meal and rest breaks. However, certain employees may be considered “exempt” from these rules, meaning, not entitled to overtime or breaks, provided that they meet an “exemption” recognized by federal and state law. The most common exemptions are the executive, administrative, and professional exemptions, known as the “White Collar Exemptions.” To fall under one of these exemptions, an employee must satisfy both a (1) duties test, by performing duties that qualify for the exemption, and (2) a salary test, by earning a salary that meets or exceeds minimum requirements set by law. In California, an exempt employee must earn no less than twice the state minimum wage (currently $10 per hour) for full time employment. As we blogged about here, Governor Brown recently passed legislation increasing the statewide minimum wage, and as the state minimum wage goes up, so will the minimum salary that must be paid to exempt employees in order for them to retain their exempt status under California law.
Because the new federal floor of $47,476 will be higher than the current state floor of $41,600, California employers who pay their exempt staff more than $41,600 but less than $47,476 may risk federal law liability while avoiding state law liability.
The Final Rule contains nuances, including allowing employers to count non-discretionary bonuses and other incentive payments, including commissions, that are paid at least on a quarterly basis, to satisfy up to 10% of the minimum salary level. The law also contains a mechanism whereby the minimum salary levels will automatically update every three years to adjust for inflation starting January 1, 2020.
Now is a good time for employers who pay their exempt staff less than $47,476 per year to reevaluate these employees’ compensation and determine whether such employees should receive an increase in pay to retain exempt status or otherwise be re-classified as non-exempt. Employers should also be sure that all exempt staff are primarily performing duties that make them eligible for exempt status.
If you have any questions about this or any other employment law-related matters, please feel free to reach out to Polina Bernstein or Diana Friedland at (818) 817-7570.
The above summary has been prepared for general informational purposes only and is not intended as legal advice.
Bernstein & Friedland, P.C. is a boutique employment law firm in Los Angeles specializing in wrongful termination, discrimination, harassment, retaliation, and unpaid wage and overtime matters. Please visit our website at www.laemploymentcounsel.com to learn more about us.