May 23, 2016
by CLG Attorney Andrea Jones

Last week, the Department of Labor (DOL) announced a new overtime rule (the “Rule”) that will automatically extend overtime pay protections to over 4 million workers nationwide. The Rule takes effect on December 1, 2016 and will especially affect small business owners. Below is a summary of how the changes will affect California employers.

The New Salary Threshold for Exempt Employees

As you are likely aware, exempt employees (often paid a salary) are not entitled to overtime. Since 2004, federal law required employers to pay exempt employees a minimum salary of $23,660.00 per year in order to qualify for the administrative, professional, executive, and computer professional exemptions (“white collar exemptions”). The new Rule significantly increases the minimum salary threshold to $47,476.00 ($913 per week), but allows employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

Effect on California Employers

Although the new DOL regulations only address exempt status pursuant to federal law; employers in all states must satisfy both federal law and any applicable state‐law test for exempt status. Hence, California employers may need to either increase the salary of their exempt employees or begin paying them overtime.

Currently, the minimum salary in California for exempt “white collar” employees is $41,600 ($800 per week). Once the Rule takes effect, the DOL’s salary minimum will catapult over the California minimum.  Therefore, beginning December 1, 2016, any California employee classified under a white-collar exemption must be paid a minimum salary of $47,476.00, or . If the employee is paid less than $47,476.00, then he or she is no longer exempt, and therefore entitled to overtime pay.

If you have any questions regarding the new Rule and/or how to comply with its requirements, please contact Andrea Jones at [email protected].

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