Effective December 1, 2016, there is a new salary requirement for the administrative, executive and professional exemptions.
What is the New Federal Salary Requirement?
The new federal rule increases the salary requirement for exempt executive, administrative and professional employees from $455 per week to $913 per week effective December 1, 2016, and provides for automatic increases to the salary test every three years, beginning January 1, 2020.
The changes to the federal overtime rule mean that the federal salary test is now relevant to California employers beginning December 1.
For administrative, executive and professional employees to continue to be exempt under both California and federal law, California employers will need to follow:
· The federal salary test of $913 a week, because it is now more protective than California’s test.
· The California duties test, because it is still more protective of employees.
Does the New Federal Salary Test Apply to All Exemptions?
No. The new federal salary test applies only to the executive, administrative and professional exemptions:
· Employees classified as exempt under California’s outside sales, commissioned inside sales, and computer professional exemptions do not have to meet the new federal salary test. They must meet any applicable California salary requirement.
· The federal salary test does not apply to teachers (if their primary duty is teaching in an educational establishment), or to licensed lawyers or doctors (bona fide practitioners of law or medicine) because under federal law, these employees do not have to meet the salary test to be classified as exempt under the professional exemption.
· However, California requires teachers, lawyers and doctors to meet both a duties and salary test under the professional exemption. If you employ teachers, doctors or lawyers, they must still meet the California salary requirement.
Do Bonuses and Commissions Count Toward the Salary Test?
Not in California. The new federal rule amends the federal salary basis test to allow employers to use nondiscretionary bonuses and incentive payments to satisfy a portion of the new salary test. However, California law does not allow such payments to be used to meet the salary test, so this change in the law also does not affect California employers.
Does the Highly Compensated Employee Exemption Apply in California?
No. California does not provide a “highly compensated employee” exemption.
Under federal law, certain “highly compensated employees” can be exempt by meeting only a minimal duties test if their compensation exceeds a certain amount. The new federal rule increases the annual compensation requirement for the federal “highly compensated employees” exemption.
How California Employers Can Prepare for the Federal Overtime Rule?
· Increase Salaries to Retain Exempt Status
· Reclassify Employees as Nonexempt
Contact your HR Representative if you have any questions regarding this new rule.