New Salary Test Minimum

The long awaited overtime regulation has been announced by the Department of Labor, and spells big change and hard decisions for many employers throughout the country. As anticipated, the new rule provides for a significant increase to the minimum salary threshold for all white-collar exemptions under federal law. The current minimum salary requirement is $23,660 annually (equivalent to $455 a week). The new rule bumps the minimum salary requirement to a whopping $47,476 annually (equivalent to $913 a week). Employers must comply with the new minimum no later than December 01, 2016.

Employers in California must remember that compliance with both state and federal law is necessary. Due to the January 01, 2016 California minimum wage increase to $10 an hour and the requirement that exempt level employees in California make at least double the minimum wage, many California employers are still adjusting to the minimum salary increase which was bumped from $37,440 annually, to $41,600. Employers scrambled to adjust their employee classifications and exempt employee salary levels to ensure compliance with the increase. Under this new federal rule, employers must once again evaluate their work force and financial flexibility to keep in compliance.

There may be some silver lining in the Department of Labor’s announcement. Many anticipated the new rule would include mandated annual increases to this minimum salary requirement. However, contrary to the proposed rule, the final announcement provides for adjustments to the threshold only once every three years. This win, although minor, brings comfort to some who may not have the infrastructure to withstand annual upheavals with regard to exempt level salary increases.

For those employers who are considering transitioning some exempt employees to a non-exempt status, it is important to remember that, although federal overtime is only due to non-exempt employees working over 40 hours a week, California employers must continue to comply with the overtime rule that mandates overtime is paid when an employee works over 8 hours in a day or 40 hours in a week. And in all cases, comply with California law whenever more favorable to the employee.

Employers should take advantage of the time between now and December 1, 2016 to strategize and consult with experts to develop a solid plan and ensure compliance by the deadline.