Determining when an employee gets overtime — and when an employee can be considered “exempt” from overtime — is tricky business in California. Penalties can be extraordinarily severe for an employer who improperly classifies a worker as “exempt.”
In general, under current California law, every employee who works over 8 hours in a day or 40 hours in a week must be paid overtime unless that employee (1) fits within one of the recognized exemptions (i.e., executive exemption, administrative exemption, professional exemption, or highly-paid computer worker), and (2) is paid a salary that is at least 2x the state’s current minimum wage.
The state’s current minimum wage is $10 per hour. Therefore, the minimum salary that an exempt employee can be paid is $20 x 8 hours/day x 5 days/week x 52 weeks/year, or $41,600 per year. Therefore, under current California law, an employee making less than $41,600 can never be considered exempt from overtime even if that worker falls within one of the recognized exemptions.
Earlier today, however, the U.S. Department of Labor issued new overtime regulations that set the minimum salary at $47,476. The new regulations allow employers to use non-discretionary bonuses and incentive compensation (including commissions) to satisfy up to 10% of this new salary level.
The new regulation becomes effective on December 1, 2016. Accordingly, effective on December 1, 2016, a California employee must be making at least $47,476 and fall within one of the recognized exemptions in order to be properly considered exempt from overtime. The new regulations did not change the duties that must be met in order to fall within the recognized exemptions. Only the minimum salary has been changed.
This new regulation will impact employees in other states far more than California. That’s because California already had one of the highest minimum exempt salary requirements in the nation. But if you are a California employer and you have an exempt employee who earns less than $47,476, you will need to raise that employee’s salary if you want to keep that employee as exempt from overtime.
You can find FAQ’s about the new federal regulation here.