The press is full of reports on the Department of Labor’s new overtime rules just published on May 17, 2016, including this helpful Fox Rothschild summary. While these rules will have a broad impact in other states, what about California? The answer is not so much.
The one change that impacts California is the new minimum salary threshold of $47,476. Effective December 1, 2016 all exempt employees in the so-called white collar exemptions (administrative, executive and professional) must meet that minimum salary threshold. The current minimum salary threshold is $41,600, twice the state’s current minimum wage of $10 per hour. With Governor Brown’s new bill passed last month, the state’s minimum wage is set to increase to $10.50 per hour on January 1, 2017, which would have made the minimum salary level for exempt status $43,680. Now that level is increased $3,796 more than expected, and the increase comes a month earlier.
The new federal regulations allow up to 10% of that minimum salary level to include non-discretionary bonuses, incentive payments and commissions. But current California law allows no such thing, so we will need to see if California law changes to adopt that federal standard. Until then, it may be possible to make up the $3,796 difference between the state’s minimum threshold (which will be $43,680), and the federal minimum threshold ($47,476) with such additional compensation (as long as it is paid at least quarterly).
The new federal regulations also increased the minimum salary threshold for the highly compensated employee exemption to $134,004 (up from $100,000). But that exemption has never applied in California, so no impact here.
Finally, a lot of pundits are breathing a sigh of relief that the Department of Labor did not adjust the duties requirements for the white collar exemptions. But no relief in California. Here employers still need to follow those stricter duties requirements, and ensure that such employees consistently spend more than 50 percent of their time on exempt duties. Proving that will continue to be a challenge, especially in workplaces where California managers need to cover for non-exempt employees who take uninterrupted meal breaks (of no less than 30 full minutes), rest breaks (for every 4 hours or major fraction thereof), and paid sick leave (accrued at the rate of no less than 1 hour per 30 worked).
There is one positive impact of the new federal law. Employers who were looking for a way to reclassify “borderline” employees without raising a red-flag as to why, now have the perfect excuse.