In March 2014, President Obama directed the United States Department of Labor (“DOL”) to modernize and streamline the Fair Labor Standard Act’s (“FLSA”) overtime regulations. In response, the DOL published a notice of proposed rulemaking to bring nearly 4.7 million currently exempt employees within the scope of overtime protections. Currently, California’s minimum salary requirement is more restrictive than federal law, making the federal standards irrelevant to California employers. If the proposed laws pass, however, California employers will be faced with classification issues. The proposed regulations are expected to take effect the first quarter of 2016. Key provisions of the proposed regulations are discussed below.
The White Collar Exemptions’ Minimum Salary Requirement Is Increasing. The proposed regulations more than double the current salary threshold for white collar exemptions, which exclude executive, administrative and professional employees from federal minimum wage and overtime requirements. Presently, to qualify for one of these exemptions, employees must: (1) be salaried; (2) be paid a minimum of $455 per week or $23,660 annually (the “minimum salary level”); and (3) primarily perform executive, administrative or professional duties as defined in the DOL’s regulations (the “duties test”).
The proposed amendments would increase the minimum salary level to $921 per week, or approximately $47,892 per year. However, by the time the proposed regulations become law, the DOL anticipates this minimum salary level will increase to $970 per week, or $50,440 annually. Also, while the DOL has not proposed changes to the “duties test,” it has solicited commentary on what changes, if any, should be made, suggesting changes may occur in the future.
The Computer Employee Exemption’s Minimum Salary Requirement Is Increasing. The regulations also propose an increase in the exempt computer employee’s minimum salary level. Currently, the minimum salary level is $27.63 per hour, or $455 per week. The regulations propose that the minimum salary level change to match the minimum salary level of the white collar exemptions.
The Highly Compensated Employee Exemption’s Minimum Salary Requirement Is Increasing. Currently, certain highly compensated employees are exempt from the FLSA’s overtime pay requirements if they: (1) are paid total annual compensation of at least $100,000; (2) receive at least $455 per week paid on a salary or fee basis; (3) perform office or non-manual work; and (4) customarily and regularly perform at least one of the exempt duties or responsibilities of an executive, administrative or professional employee. The proposed regulations increase the minimum salary level to $122,148 per year.
Automatic Updates. The regulations also propose that the minimum salary level test be automatically adjusted periodically, to ensure salary levels change consistently and gradually.
Now is the time to be proactive! Once the proposed amendments take effect, employers in every state will be required to review the exempt status of their employees. The time before the proposed regulations take effect provides a window of opportunity for employers to update and correct written policies, accurately update job descriptions and address classification errors.
Employers are encouraged to work with senior management to address the proposed regulations’ effect on employee classifications. This may include raising the salary for certain employees or reclassifying employees from exempt to non-exempt. Reclassifying exempt employees to non-exempt also implicates other issues that must be addressed such as timekeeping policies and practices, scheduling, compensation structures and the calculation of the overtime rate to meet federal and state wage and hour requirements.
For further information about the FLSA’s proposed regulations in particular, or employment law in general, please contact Danielle M. Ellis-Andrews at dme@severson.com.