Every employee in the country is classified by law as either “exempt” or “non-exempt.” Exempt employees are exempt from wage and hour rules that mandate clocking in and out, rest breaks, meal periods, overtime, etc. Non-exempt employees are not exempt from those rules. In order to qualify as exempt, two factors must be met. First, the employee must hold a job that the law permits to be classified as exempt. Second, the employee must earn a guaranteed base salary that meets certain minimum requirements. Both federal and California state law applies to these rules. The current requirements are as follows: - Current Federal Minimum Salary: $684/week ($35,568 / year)
- Current California Minimum Salary: $1,280/week ($66,560 / year)
Because California’s minimum required salary is higher than the federal minimum required salary, employers with employees only in California can generally focus solely on the California rule and ignore the federal rule. For years, federal regulators have played a game tug-of-war in their attempts to increase the federal minimum salary that must be paid to exempt employees. At long last, a two-step increase plan has cleared all hurdles and is set to go into effect as follows: - July 1st Federal Minimum Salary: $844/week ($43,888/year)
- January 1st Federal Minimum Salary: $1,128/week ($58,656/year)
Despite these increases, the California minimum salary requirement remains higher than the federal minimum salary requirement. What does this mean for California employers? If you do not have any employees outside of California, these changes do not impact you. Continue to monitor and comply with all California requirements. Please note – the California minimum salary requirement increases every January 1st. It is recommended that all employers with exempt employees set a recurring calendar reminder for every December to determine the new minimum salary requirement and make any necessary adjustments. If you do have employees outside of California and any of those employees are classified as exempt, audit their salaries now and make any necessary changes in order to comply (a) no later than July 1st, (b) no later than January 1st, and (c) every January 1st thereafter. Federal law also allows for a “Highly Compensated Employee” (HCE) exemption by which employees who earn not less than the designated amount automatically qualify as exempt, whether or not their job qualifies as exempt. Unfortunately, this rule does not apply to employees in California. If you do have HCE’s who work outside of California, the rules may apply. If so, here are the applicable minimum salary requirements for HCE’s under federal law: - Current Federal Minimum Salary for HCE: $107,432/year
- July 1st Federal Minimum Salary for HCE: $132,964/year
- January 1st Federal Minimum Salary for HCE: $151,164/year
Of course, if you have any questions please contact the authors of the Update or your usual counsel. Reprinted with permission from Scott & Whitehead. |
