Seyfarth Synopsis: The United States Department of Labor (DOL) released its final overtime rule on Tuesday, September 24, 2019, increasing the minimum salary level for exempt status to $35,568 per year for a full-time employee under the federal Fair Labor Standards Act (FLSA) effective January 1, 2020. But California employers must meet higher minimum salary requirements and other nuances that employers subject only to the FLSA need not.

Game On!

On Tuesday, the DOL released its final overtime rule, increasing the minimum salary threshold for exemption from overtime under the FLSA to $35,568 per year. According to the DOL, an estimated 1.3 million American workers currently classified as exempt under the FLSA must begin receiving overtime pay based on current pay rates. Thus, employers should take stock of the potentially newly eligible receivers on their roster to be prepared for the blitz: the final rule is effective January 1, 2020.

The final rule also allows employers to include annual nondiscretionary bonuses, incentives, and commissions to meet up to 10% of an employee’s minimum salary level for exempt status. If an employee’s nondiscretionary bonus or incentive payments in a particular 52 week period are too low, the new rule permits a “catch-up” payment within one pay period of the end of the 52-week period to maintain exempt status. Talk about 4th and inches!

The final rule says that:

  • The standard salary level from the currently enforced level will be raised from $455 to $684 per week (amounting to $35,568/year for a full-year employee)
  • The total annual compensation level for highly compensated employees to be considered exempt will be raised from $100,000 to $107,432
  • Employers may use nondiscretionary bonuses and incentive payments to meet salary exempt levels, including commissions, in recognition of evolving pay practices, so long as employees are paid at least annually to satisfy up to 10% of the standard level
  • The special salary levels for employees in the U.S. territories and in the motion picture industry are likewise increased

But California Employers Play By West Coast Offense

California employers must take heed, for the Golden State has its own rules for exempt status, and these new federal rules will not impact the California employer’s playbook.

As to minimum salary, California’s current minimum already is higher than the FLSA rate will be next year, and California’s minimum will continue to climb over the next few years as the state minimum wage rate incrementally rises to $15 per hour for all workers by 2023. And California does not subscribe to the new FLSA rule allowing employers to include 10% of nondiscretionary bonuses and incentive compensation to meet the minimum salary threshold.

Here is a helpful chart California employers should flag to stay between the hashmarks for the coming years on both federal and California salary exempt thresholds:

Year Federal                         California
    Up to 25 employees 26+ employees
2019

$455/week

$23,660/year

$880/week

$45,760/year

$960/week

$49,920/year

2020

$684/week

$35,568/year

$960/week

$49,920/year

$1,040/week

$54,080/year

2021

$684/week

$35,568/year

$1,040/week

$54,080/year

$1,120/week

$58,240/year

2022

$684/week

$35,568/year

$1,120/week

$58,240/year

$1,200/week

$62,400/year

2023

$684/week

$35,568/year

$1,200/week

$62,400/year

$1,200/week

$62,400/year

We have previously blogged about many of the other substantive peculiarities with exemptions in the California here (creative exemption), here (executive exemption), and here (administrative exemption), and California employers must comply with all state exemption rules to avoid a fumble.Additionally, Left Coast employers beware—no salary caps here! Simply earning $107,432 or more per year does not get you to the end zone for exemption in California. Such high earners still must meet the substantive requirements for one of the California exemptions to be ineligible for overtime pay, as there is no highly compensated exemption out west.

And What About Employees Who Cross The Line Of Scrimmage Into California?

If an employee who normally works outside of California and qualifies as exempt under federal law comes to California for work, but does not meet California’s exemption standards, a flag may be thrown. The employer likely must play by the California rules, including overtime pay requirements, for the period the employee works in California. While the California Supreme Court still is pondering the full extent of this issue, employers should exercise caution to minimize potential exposure to a California penalty for employees temporarily working in California.

Workplace Solutions

For more on the DOL final order, check out our One Minute Memo here. And if you have any questions about the potential applicability of California exemptions to your team members, don’t throw a Hail Mary—Seyfarth is here to help both your offense and defense.