11/23/16 UPDATE: Judge blocks this overtime law…click HERE to read details
Starting in December of 2016, the minimum wage for employees paid on a salary basis that are considered exempt will increase from the current $455 minimum to $913 weekly. Exempt employees are those employees that don’t get paid for overtime work. Since the federal salary requirement is going to be higher than California’s minimum, all employers in California will be required to either increase their employees pay to the $913 per week ($47,476.00 per year) or change them to non-exempt employees and pay them for overtime.
This new regulation is going to have a huge impact on the employers in California. The USDOL (United States Department of Labor) reported that more than 10% of California salaried exempt employees, which includes more than 400,000 people, will be provided overtime pay if their salary is not increased to meet the new regulations.
What to Expect
The following are changes in the new regulations:
- The minimum salary for individuals under the administrative, executive and skill-specific exemptions is increasing to $913 per week.
- The minimum amount for earnings of full time salaried workers will be updated every 3 years, which means employers can expect the amount to continue to increase again starting in January 2020. All changes will be announce by the USDOL 150 days prior to the update.
- Employers will be able to “use” non-discretionary bonuses, incentive payments and commissions, up to 10% of the minimum salary ($4,747.60 until 2020), to achieve the minimum salary level as long as payments are made at least quarterly.
- The total compensation for the highly compensated employee exemption will increase from $100,000 to $134,000 annually. This increase will also update every three years and will most likely continue to increase.
What’s not affected
USDOL has not made any changes to any exemption requirements related to the amount of work necessary to be eligible for exempt status. This is also known as a “duties test” and the FLSA (Fair Labor Standards Act) currently requires a qualitative test that’s based on each employee’s main duty assignments.
The USDOL was requesting feedback regarding the amount of work required to be considered for exempt, but that wouldn’t make a difference to those in California because California requires a time quantitative test which means employees must be performing their exempt duties more than 50% of their working time every week.
What this means for your company
Employers should plan for this change to go into effect in December regardless of the talk regarding some Congress members efforts aimed at stopping the changes. Employers can consider the following options in preparation for the upcoming changes:
- Increase salaries to $913.00 for employees who meet the duties test in order to retain their exempt status.
- Consider reclassifying the affected employees to a non-exempt status and pay for overtime. This option is favorable for individuals whose duty time is close to California’s 50% threshold.
- Consider revising compensation plans in order to offset the anticipated overtime costs (make sure you’re still in compliance with the ACA if you reduce an employee’s hours!)
- Consider creating an alternative work schedule on a weekly basis which could help an employer manage daily overtime.
- Reduce or eliminate hours worked beyond 8 per day or 40 per week all together.
Employers can explore these options with a legal advisor or HR consultant in combination with their financial team to help prepare for the December 1st deadline.
Employers in California might also use this opportunity to reevaluate their workforce, including re-examining exempt positions within the company to confirm the positions are classified appropriately depending on the specific exemption category.