Last week, the federal Department of Labor (“DOL”) announced its long-awaited final rule increasing the minimum salary requirements for certain exempt workers. The DOL announced its final rule on May 18, 2016, and the rule will go into effect on December 1, 2016. A helpful fact sheet for private employers, published by the DOL, is available here.
At its core, this new rule will affect employees and employers as follows:
- The minimum weekly salary for an exempt Executive, Administrative, Professional, or salaried Computer Employee (e.g., software engineers) will increase from $455 to $913 per week ($47,476 annually, up from $23,660). Prior to the new rule, employers in California were already required to pay such exempt workers (except for Computer Employees, as discussed below) at least $41,600 annually; this minimum is no longer lawful and California employees will be subject to the new federal minimum. Further, software engineers and others who fall within California’s computer professional exemption still must be paid $41.85 per hour or $87,185.14 annually, well above the new federal minimum.
- The minimum annual salary for an exempt Highly Compensated Employee (“HCE”) will increase from $100,000 to $134,004. Notably, this exemption is not available for California employees, but is often applied in other states.
- Employers will now be able to use nondiscretionary bonuses, incentive payments, and commissions to satisfy up to 10% of the salary minimum, if these forms of compensation are paid at least quarterly.
- All employees categorized as exempt under the aforementioned exemptions whose salaries fall below the above thresholds will become non-exempt, and therefore be entitled to overtime pay under the Fair Labor Standards Act for all hours worked in excess of forty (40) per week.
- Salary thresholds will continue to be updated automatically every three (3) years, beginning January 1, 2020, in order to keep minimum white-collar salaries at the 40th percentile in the lowest-wage U.S. Census region and at the 90th percentile nationally for HCEs.
California employers, and especially those in the Bay Area, should be mindful of recently increased hourly minimum wage rates in the state and many local cities – especially since employees currently treated as exempt and earning a salary may be transitioned to an hourly wage in light of the DOL’s new rule. Below are a few representative minimum wage rates effective as of January 2016 (with exceptions noted below):
- California: $10 per hour
- Mountain View: $11 per hour
- Palo Alto: $11 per hour
- San Francisco: Currently $12.25 per hour ($13 per hour effective July 1, 2016)
- Santa Clara: $11 per hour
- Sunnyvale: Currently $10.30 per hour ($11 per hour effective July 1, 2016)
For assistance with assessing this new development as it relates to your workforce, especially those employees located outside of California, please consult a member of our Employment Practices team.