The new Federal Regulations require attention before year end. Effective December 1, 2016, the minimum salary threshold needed to qualify for exempt status will increase to $47,476 annually or $913 per week. These new standards exceed the current California law requirements. Meaning that employers who are the minimum California requirements will be non-compliant as of December 1, 2016.
|Old Federal Rule||New Federal Rule||California Rule|
|Salary Threshold Per
Week to Qualify
|Salary Threshold Per
Year to Qualify
Employers should use this as an opportunity to review all exemptions, not just the ones falling into the old and new salary requirements. Employers should audit all job descriptions and duties performed (i.e. how does an employee actually spend the majority of his or her time) as well as check the salary being paid. In performing an audit, it is important not to just review guidelines but to determine what employees are physically doing each day to determine if they meet the qualifications. Employers may find that positions need to be reclassified. If changes are necessary, it’s important that employers engage in these conversations immediately. Employers will also need to adopt and/or update their overtime policies and internal systems to better track hours for employees being reclassified as non-exempt. To comply with the new regulations, here are the options for employers to consider:
|Option 1||Option 2||Option 3||Option 4|
|After reviewing job duties to determine that employees are performing exempt duties, increase salaries to meet the new minimum threshold.||Forgo exemption and convert impacted employees to a nonexempt, salary or hourly status and pay them for overtime hours.||Hire more employees in order to limit the amount of overtime hours that existing employees will have to work.||Limit employees to 8 work hours a day in California, and 40 a week under federal law.|
If possible, employers should try to make overtime changes the week of Thanksgiving because December 1st is a Thursday and an employer would otherwise be reclassifying an employee in the middle of a workweek. Also, because it is a short week, it is unlikely that employees will work more than 40 hours anyways.
Other key provisions of the new regulations include:
- Counting non-discretionary bonuses, incentive payments, and commissions towards a maximum of 10% of an employee’s salary to meet the new salary threshold. For this to count, these payments must be paid on a quarterly or more frequent basis. What this means is generally an employer can’t simply pay a year end lump sum bonus to meet the exemption.
- Increasing the total annual compensation for “highly compensated employees” from $100,000 to $134,004 per year; and
- Being aware that the minimum salary and compensation thresholds will increase every three years consistent with inflation.
What Does This Mean for Employers in California?
Employers must adhere to both State and Federal laws. This means if your pay practice is compliant with State law but not Federal law you need to take immediate action. California currently only requires employers to pay overtime for their employees who make under $41,600 a year. Employers that are meeting this minimum will need to change either how much employees are paid or how they are paid.
If you would like more information, or would like to discuss a specific option for your business, please call Christine Long or Susan Bishop at 408-286-5800, or contact one of Berliner Cohen LLP’s employment attorneys.
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