Big Changes Ahead: Minimum Salary for Exempt Employees Must Be $47,476 By December 1, 2016

On May 18, 2016 the United States Department of Labor (“DOL”) released its final updated regulations governing overtime exemptions.  The DOL’s Wage and Hour Fact Sheet detailing the changes can be found here.

Although it does not go as far as the proposed rules, the new regulations dramatically expand the number of workers eligible for overtime compensation under the Fair Labor Standards Act (“FLSA”) raising the current salary threshold for exemption of $455 per week ($23,660 per year) to $913 per week ($47,476 per year).  Assuming the regulations survive legal hurdles posed by Congress, Employers will have until December 1, 2016 to comply with the new regulations.  The salary requirement will then automatically adjust every three years with the first adjustment occurring January 1, 2020.

Historically, California employers safely ignored the FLSA minimum  salary requirements as California’s minimum salary was higher.  California requires a minimum salary of twice the minimum wage based on a full time schedule of 40 hours per week (2080 hours per year).  The current minimum salary requirement for exempt employees in California is $41,600 ($20 x 2080),  nearly twice the former federal requirement.

Now, everything has changed and it is time for employers to identify employees who will be impacted by the updated regulations and to plan accordingly.  Employers can either increase exempt employees’ salaries to meet the new threshold (incentive bonuses and commissions will be allowed to account for up to 10% of the minimum salary requirement) or they can reclassify the employees as nonexempt.   For more information about implementing the DOL’s updated regulations and any other employment related matters, contact Jennifer Douglas Phillips  Gregory Walsh or Owen Dallmeyer in our Labor & Employment group.