As of January 1, 2020, the federal salary threshold for employees to qualify as exempt from overtime will increase from $455 per week ($23,660 per year) to $684 per week ($35,568 per year). For employees to qualify under the Fair Labor Standards Act’s (FLSA) “highly compensated employee” exemption, the minimum salary threshold will increase to $107,432 per year.
As a reminder, for an employee to be classified as exempt, they must meet both the minimum salary requirement and the “duties test.” This new law does not make any changes to the duties test.
It also does not affect employees in California, where the exempt salary threshold is higher.
California employers must comply with the higher thresholds for their employees working in the state. The minimum annual salary for a managerial, administrative, or professional employee in California to be classified as exempt is $49,920 ($45,760 for employers with 25 or fewer employees). Also, California does not recognize the “highly compensated employee” exemption.
Another difference is that the federal law allows for bonuses, commissions and incentives that are paid at least annually to be counted toward the minimum salary requirement. California makes no such provision. And California’s duties test is stricter than the duties test under federal law. Here, an employee must spend more than 50% of their time in each workweek performing exempt duties to qualify as exempt from overtime.
If you have employees outside of California now is the time to review your compensation plans for exempt employees and make any changes needed to comply with the new federal law by January 1.
If you only have employees in California, it’s also a good time to review employee compensation and classification to ensure you are complying with California law.
Please reach out to me at firstname.lastname@example.org if you need help reviewing employee classifications.