Department of Labor Issues Final FLSA Regulations: How Do the Changes Impact California Employers? Today, the Department of Labor’s Wage and Hour Division announced the long-awaited final regulations raising the minimum salary requirements for executive, administrative and professional employees under the Fair Labor Standards Act (FLSA). While the new regulations dramatically increase the minimum salary for exempt status to $47,476 per year (or $913.00 per week), they don’t become effective until December 1, 2016. This gives employers over six months to comply with the new rules. California employers need to carefully evaluate whether and how the new FLSA regulations impact California wage and hour compliance. If you are a California employer, remember the new rules only change federal law. To the extent California wage and hour law provides protections more favorable to employees, California law applies instead of the new FLSA rules. A summary of the most important FLSA regulatory changes is provided below, along with an analysis of whether and how the change will impact California employers. The salary level requirement for certain exempt employees under the FLSA is increased to $47,476 per year (or $913.00 per week). Starting on December 1, 2016, certain employees cannot be classified as exempt from FLSA minimum wage and overtime rules unless they are paid this minimum salary. This change affects employers in California because the new federal salary level is higher than California’s present minimum salary level of $41,600. This means that California employees will not be exempt under federal law unless they are paid at least $47,476 on an annual basis (or $913.00 per week). Under the new regulations, employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the minimum salary level. To credit these payments toward the minimum salary level, employers must make sure employees receive the payments at least on a quarterly basis. Employers are also able to make a “catch-up” payment, but only 10% of the payments can be attributed to the salary level. For the first time in the history of the FLSA, the salary level will be indexed to data from the Bureau of Labor Statistics and updated at least every three years. This means the salary level is subject to regular increases, without the need for FLSA rulemaking. Employers will have to budget for these expected adjustments and perform audits, preferably on an annual basis, to ensure exempt employee salaries do not fall below the minimum. The new FLSA salary level does not apply to outside sales employees and certain other professionals like lawyers, doctors and teachers. The salary level requirement for the highly compensated employee exemption is increased to $134,004 annually. This change does not necessarily impact California employers, as the highly compensated employee exemption is not recognized under California law. Employers in states that can take advantage of the highly compensated employee exemption will need to ensure that those employees meet the new salary requirement on either a salary or fee basis, depending upon the nature of the exemption claimed. The duties required to satisfy exempt status are not changed by the new regulations in any respect. This means that, other than accounting for the increased minimum salary level, employers do not need to change their audit process for reviewing employee duties as part of an exemption analysis. What steps should employers take now? At a minimum, employers should take the following steps to comply with the new regulations:
Identify current exempt jobs with salaries that fall below the new $47,476 salary level, taking into account permissible nondiscretionary bonuses and incentive payments (including commissions).
Determine whether those positions will be reclassified as non-exempt or receive a salary “bump-up.”
Consult with legal counsel to ensure best practices are followed for reclassifying positions as non-exempt. Crucial considerations include setting the new hourly rate of pay, communicating overtime requirements and ensuring rest and meal break compliance.
Provide training to supervisors on how to manage non-exempt employees by spotting and addresses wage and hour compliance issues.