Last week the Department of Labor published a Final Rule updating the federal overtime regulations. Most significantly, the new rule increases the minimum salary required to qualify for the Executive, Administrative, and Professional exemptions to $913 per week (or about $47,476 annually). The new rule also creates a mechanism for automatically updating the minimum salary requirement every three years starting January 1, 2020. These changes become effective on December 1, 2016.
This new rule revises federal requirements concerning these exemptions. However, states may impose different and additional wage and hour requirements. Thus, employers must be mindful of and compliant with both state and federal requirements.
California has already increased its minimum salary requirement for the Executive, Administrative, and Professional exemptions to $41,600 per year, effective January 1, 2016. Because the new federal standard is higher, employers who have current salaried exempt California employees whose salaries exceed the California standard ($41,600) but are less than the new federal standard ($47,476) will need to evaluate their options and make appropriate changes to comply with the new federal rule. For example, employers could raise employee salaries to meet the new salary requirement and try to maintain their exempt status. Alternatively, employers could reclassify those employees as non-exempt.
Employers should understand that any option could have significant implications for the business and their employees. An individualized audit of the employer’s current policies and practices will help ensure that employees are properly classified and that any changes are consistent with California and federal law.
We are happy to advise California employers through these changes. To further discuss how these new regulations may affect your business, contact Stephen Lanctot at firstname.lastname@example.org, Susan Jamison at email@example.com, Charmaine Yu at firstname.lastname@example.org or Clifford Yin at email@example.com.