New Federal Overtime Rules Go into Effect, but California Employers Face Stricter Requirements

New Federal Overtime Rules Go into Effect, but California Employers Face Stricter Requirements

Minami Tamaki’s Consumer and Employee Rights Group (CERG) regularly represents clients in wage-and-hour matters involving overtime pay and classification of employees as exempt/non-exempt. 

On January 1, 2020, new United States Department of Labor (“DOL”) rules on the Fair Labor Standards Act’s (“FLSA”) minimum salary test for exemption from overtime compensation went into effect. 

These new rules were widely reported by news outlets, and DOL reported that they will result in an additional 1.3 million U.S. workers receiving overtime pay. 

However, California employers and employees should be aware that California has its own minimum salary requirements for exempt employees that are significantly higher than even the new federal minimum salary rules.

New Federal Minimum Salary Test

Under the new Department of Labor rules, the minimum salary for exempt managerial, administrative, and professional employees is $35,568 per year (it was previously $23,660).  Employees who earn less than this amount are not exempt from overtime under the FLSA.  Certain bonuses and incentive compensation count toward meeting this minimum salary threshold.

Federal law also recognizes a highly compensated employee exemption.  The minimum “total annual compensation” to qualify for this exemption is increasing to $107,432 (compared to the prior $100,000), and at least $684 per week must be paid on a salary or fee basis (a predetermined, guaranteed amount each pay period that is not based on production).

California Law Remains More Favorable for Employees

It is important to note that California has a higher minimum salary threshold than even the new FLSA salary test. Because employers must comply with whichever law is more favorable to employees, the FLSA changes will have little impact on California employers.

For 2020, the minimum salary for the administrative, executive, and professional exemptions under California law is $54,080 ($49,920 for employers with 25 or fewer employees). California employees who do not meet this minimum salary test cannot be classified as exempt employees.  California does not have a provision allowing bonuses, commissions, and incentives to be counted in reaching the minimum salary thresholds for exempt status.  There are also specific California requirements for certain computer professionals and doctors.

Further, California does not recognize a “highly compensated employee” exemption. 

Moreover, the California “duties test” for classifying employees as exempt remains more strict than under federal law.  Under California law, exempt employees must spend more than 50% of their time performing exempt duties each workweek.  An employee must meet both the minimum salary test and the duties test in order for an employer to classify the employee as exempt.

Have Questions?

For more information on legal requirements regarding overtime pay and applicable exemptions, you may contact Minami Tamaki at (415) 788-9000 or through our online form.

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