The Department of Labor has announced new federal regulations increasing the minimum salary that must be paid to qualify an employee as exempt from overtime. As of December 1, 2016, an exempt employee must be paid a minimum of $913 per week, or $47,476 annually.
The current California minimum annual salary for exempt employees is $41,660. This means that California employers with employees who are currently classified as exempt and earn between $41,660 and $47,476 will need to decide before December 1 whether to reclassify these employees as nonexempt, or increase their salaries to at least $47,476.
The duties tests for exempt classification have not changed. In California, a position may qualify as exempt if more than 50% of the work is administrative, professional or executive in nature.
In addition to increasing the minimum salary, the new federal regulations allow employers to count non-discretionary bonus compensation and certain other incentive pay for up to 10% of the minimum salary, and provide for automatic adjustments in the salary and total compassion levels for the exemption every three years, starting in 2020.
Misclassification of employees is one of the top three areas where employers are vulnerable to lawsuits. Be sure that you understand the duties tests, and check with your employment attorney if you are unsure how to classify an employee.
As a reminder, in California, employees may be exempt from overtime pay rules if:
- They are engaged in work which is primarily intellectual, managerial or creative, AND
- They are paid the required minimum salary. As mentioned earlier, this salary will be $47,476 as of December 1, 2016.
Employees who meet these criteria are generally classified in one of the three exempt classifications: Executive, Professional, or Administrative. Unless a job falls into one of these exemptions, an employer must pay overtime. In California, non-exempt, hourly employees are entitled to overtime pay for any hours worked over 8 in a day and over 40 in a week.