California Exemptions

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I am both proud and excited to be featured in two new training videos for workplace supervisors and human resources representatives handling California-specific and federal wage and hour issues.

Developed and produced by Kantola Productions, “California Wage and Hour Laws: What You Need to Know” is designed to help companies train their supervisors and human resources representatives to become better, more legally compliant managers.  The video consists of modules that break down the complex requirements regarding a variety of wage and hour matters including:

  • Exempt vs. Non-Exempt Employees
  • Employee vs. Independent Contractor
  • Overtime
  • Meal & Rest Breaks
  • Hours Worked

There is also a federal version of the video.

Both videos are available for purchase in several formats:  DVD, online training for up to 25 viewers, or instant streaming for a single user.  To receive a 20% discount, Fox Rothschild clients and their contacts can enter Fox20 in the “catalog code” box when filling out the online purchase form.

Take a look at a clip from the video below.  Enjoy!

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.

Salary increase
Copyright: argus456 / 123RF Stock Photo

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.

In addition to the excellent reminders my colleague, Sahara Pynes, posted here about all of the things California employers should do to get ready for 2016, here is another one:  Don’t forget that the state’s minimum wage goes up to $10 per hour on January 1, 2016.  That also means that the minimum salary for exempt classification status also goes up to $41,600 (twice the state’s minimum wage) for all “white collar” exemptions (administrative, executive and professional).  While some cities have higher minimum wages, the baseline for exempt status is still set by the state’s minimum wage (not each city).

Also keep in mind that different thresholds apply for other exemptions including commissioned salespersons (1.5x minimum wage), outside salespersons (1x minimum wage), and computer professional (currently $41.85 per hour).

Now is the time to confirm that you and your payroll provider are all set for this increase.  It is also a good time to evaluate the status of anyone classified as exempt who is at or below the minimum salary baseline for the appropriate exemption.

 

The Department of Labor has proposed a rule to raise the minimum salary workers must earn to qualify for “white collar” exemptions from $23,660 per year to $50,440 per year. According to the announcement, the proposed rule would move nearly 5 million workers from exempt (i.e. salaried) to non-exempt status (i.e. hourly and overtime-eligible). In California, employers typically ignore the DOL overtime rules since the CA requirements are more demanding. If you comply with the state rules, you more than satisfy the federal requirements. Will this new rule change that?

The answer is an unequivocal “maybe.” CA is considering increasing the state minimum wage to $13 per hour effective July 1, 2017. The bill, SB 3, has passed the Senate and is being considered by the Assembly. If it passes and becomes law, the minimum salary for exempt status in California would increase to $54,080 (2 times the state minimum wage).

Copyright: bowie15 / 123RF Stock Photo
Copyright: bowie15 / 123RF Stock Photo

So if the DOL’s proposed rule takes effect before SB3, you could have a situation where employees meet the state exemptions test, but not the federal. If that happens, employees making less than $50,440 would be non-exempt, those making over $54,080 could be exempt, and those in between could be in a hybrid class where the state exemption applies and the federal does not. Employees in the last category would presumably be entitled to weekly, but not daily overtime and would not be entitled to meal and rest periods. What could be simpler?

UPDATE: SB 3 didn’t pass out of the State Assembly.