As it really is not in the GT California Labor and Employment Group’s interest for this to be the final straw that causes national employers to throw up their hands in surrender and decamp from California, we offer an interim planning guide for developing the 2017 payroll budget. The larger import of the FLSA regulations is discussed in our previous blog post and GT Alert, but now it’s time for some budget guidance in planning for 2017.
Exempt status under California law is nominally similar to federal law under the FLSA with some subtle and not so subtle nuances. There is a California requirement that 50 percent or more of the exempt employee’s time be spent on exempt duties. Although incorporating a version of California’s approach was part of the proposed new federal rule, it was not incorporated into the final version of that rule. The duties test remains important under California law for employers with California employees. The employer with California exempt employees must still contend with the duties test.
Both California and federal law have a minimum salary amount requirement and an employer of California employees will need to pay the greater of the two minimum salary amounts in order to comply with both laws. The California minimum is driven by the full time equivalent of two times the California minimum wage. At the moment (the legislature is still in session) that is $41,600 per year or $800 per week. When the FLSA regulations become effective (absent a court challenge and stay) on Dec. 1, the new federal minimum salary will rise to $47,476.
Factoring in the election or a court injunction, it is possible that the new federal minimum rate will not survive beyond inauguration day in 2017. If the new federal standard is stayed or repealed, a California employer could safely revert to the $41,600 per year level, right?
Well, proving that nothing is ever easy or simple in California, the answer is a resounding maybe, but perhaps not, or at least not for long.
The reason being that the California minimum wage will go up again Jan. 1, 2017, and that means the new salary threshold for California exempt status will increase to a minimum of $43,680.
By Jan. 1, 2018, if nothing else changes, the new California minimum will be not less than $45,760. Thus, either a stay or repeal of the new federal minimum salary amount will permit employers with exempt California employees to reduce the salary amount but probably not back to the 2016 level for very long if at all.