by Michelle R. Ferber and Julie Ann Giammona

Last week, the U.S. Department of Labor (DOL) issued its highly anticipated salary overtime exemption rule, replacing the controversial Obama administration rule. Effective January 1, 2020, the new minimum salary threshold for workers to qualify as exempt under the Fair Labor Standards (FLSA) “white collar” exemption is $35,308 per year. The prior rule, which had been blocked by a Texas federal judge, set the minimum salary at $47,000 per year, with automatic increases built into the rule based on certain criteria. The new DOL rule declined to include any pre-determined increases, and instead suggested that the salary threshold be reviewed every four years, with any increase subject to a period of time for public comments. Perhaps the most surprising aspect of the DOL rule is the significant jump in salary threshold for the “highly compensated employee” exemption, from $100,000 to $147,00 per year.  Lastly, subject to certain requirements, the new rule also allows employers to count bonuses and commissions to satisfy up to 10% of the new federal salary test.

It is important to note that California wage and hour law is significantly different than the FLSA requirements. California law does not recognize a “highly compensated employee” exemption. For an employee to be exempt in California, the employee still must meet the applicable duties and salary tests for one of the exemptions. Moreover, California’s salary threshold to qualify as an overtime-exempt executive, administrative, or professional employee is twice the minimum wage for weekly full-time employment of more than 40 hours.  For employers of 26 or more employees, this means that the minimum salary threshold is $49,920 for 2019. For employers of 25 or less employees, the threshold is $45,760 for 2019. Lastly, in California, unlike under the FLSA, only an employee’s actual salary is considered in determining whether the employee meets the applicable salary test, not an employee’s bonuses and/or commissions. Although exempt employees in California can receive bonuses and commissions, they still must be paid a salary that meets the applicable salary test.

Ferber Law has the expertise and knowledge to assist you with ensuring proper classification of your employees under both state and federal laws. We welcome your inquiries.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.