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Attorneys

DOL Updates the Minimum Salary for Exempt Employees

May 18 2016

By: Lukas J. Clary

Are you sure you’re paying your exempt employees enough?   Even if you are right now, you might not be come December 1, 2016.  The U.S. Department of Labor unveiled today its long-awaited Final Rule updating the definitions of most types of exempt employees under federal law.

While there are several important provisions in the new rule, the most important for California employers is the new minimum salary threshold for exempt employees.  Federal law now requires employees earn at least $47,476 annually ($913 per week) to qualify for the executive, administrative, or professional exemptions.  This marks a significant jump from the previous federal minimum of $23,660 ($455 per week).

Under California state law, employers are currently required to pay exempt employees a salary equal to no less than twice the state minimum wage.  This translates to $41,600 annually.  State laws, however, can only offer employees more protection than federal laws, not less.  Because the state minimum salary for exempt employees will now be lower than the federal minimum, California employers will have to pay its exempt employees the federal number to continuing classifying an employee as exempt.

In addition, the DOL’s fact sheet, linked at the bottom of this blog, describes the laws key provisions as follows:

“The Final Rule focuses primarily on updating the salary and compensation levels needed for EAP workers to be exempt. Specifically, the Final Rule:

  1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South, which is $913 per week or $47,476 annually for a full-year worker;
  2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally, which is $134,004; and
  3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level. The Final Rule makes no changes to the duties tests.”

The law is effective December 1.  Employers should take the time between now and then to audit all exempt employees’ salaries to ensure they are making the minimum by December 1.

Read the DOL’s fact sheet here: https://www.dol.gov/whd/overtime/final2016/overtime-factsheet.htm