14 Sep 2016
September 14, 2016

New Federal Requirements for Exempt Employees

September 14, 2016 0 Comment
Beginning on DECEMBER 1st, 2016, the federal minimum salary for those falling under executive, professional and administrative exemptions will increase to $913/wk or $47,476/yr from the current rate of $455/wk or $23,660/yr. These minimums must be met to classify an employee as exempt from overtime and meal/rest periods.
This will be the first time in recent history that the federal minimum salary for overtime exemption is higher than California state minimums. Employers with exempt employees who don’t already pay them $47,476/yr or higher will have to make changes to comply. Employers will essentially have three options:
1. Increase salaries of exempt employees to meet both federal and state requirements
California law requires employees to meet a job duties test and be paid at least twice the minimum wage to qualify for exemption (currently $800/wk or $41,600). As of December 1st, employers will need to increase that amount by $5,876 to meet the requirements for both state and federal exemption. While this is likely the simplest solution, it could be very costly for the average employer. Employers must also take into consideration the likelihood that higher paid or longer tenured employees may demand salary increases when lower paid or newer employees receive raises.
2. Reclassifying exempt employees as non-exempt
Employers may also convert existing exempt employees to non-exempt employees by paying them hourly instead of a flat salary. This would also require employers to track all hours and meal/rest periods. This change could cause salaried employees or those who have been with the company longer to feel as though they are being demoted or cause general employee morale issues. In addition, it could create some administrative hassles for the employer.
3. Treat employees as exempt under California law and non-exempt under federal law
Employers who do not want to increase salaries of exempt employees to a minimum of $47,476 per year can continue to maintain a lower salary that complies with California exemption requirements. In this circumstance, employees will be exempt from overtime and meal/rest periods if they work more than 8 hours per day, but will not be exempt from overtime if they work more than 40 hours per week. Despite the costs this might save employers, this alternative arrangement could create some administrative complications in terms of keeping track of daily hours, weekly hours, and paying these employees properly.

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