Tuesday, October 6, 2015

Proposed FLSA Regulation Means Higher Salaries in California

Earlier this summer, the U.S. Department of Labor (“DOL”) issued a proposed regulation that could make it more difficult for employers to classify employees as “exempt,” i.e., exempt from being paid overtime, under federal law. There are two aspects of the regulation that have prompted thousands of comments.  The first relates to the job duties component; the second concerns the new salary minimum.

As those of you with California employees know, we’re already half way there. As proposed, the new DOL test essentially adopts the quantitative test required under California state law.  An exempt employee must spend at least 50% of his or her work hours engaged in duties that are directly or closely related to the particular exemption relied upon.  It’s the test you (should) have been applying for years.

The salary increase is a different matter. Under California law, an exempt employee currently must be paid a salary of at least $3,120/month, annualized to a salary of $37,440/year.  In January of 2016, the annualized minimum will rise to $41,600.  The proposed federal minimum salary is $921/week, annualized to $47,892/year.  However, the DOL has projected it could be $970/week or $50,440/year by the time the final regulation is issued.  Bonuses, commissions and other incentive pay cannot be included in calculating the minimum salary.

Under California law, the exemption that provides comparatively higher standards applies. Thus, California employers at the low end of the current minimum salary could have to come up with another $10,000 annually per employee once the regulation is issued. 

THE TAKEAWAY:  If you have exempt employees in California, prepare to increase salaries even more. If you’re not sure you can do it, start analyzing whether the position should be re-classified. If you need to make changes, get some legal advice along the way.

Posted by: Sarah Mott