The much talked about U.S. Department of Labor Final Regulations for exempt employment classification has now been published, and will have a significant effect on employers in California. While California currently has a regulation that requires employer to pay a correctly classified Executive, Administrative or Profession exempt employee no less than twice minimum wage, the new Federal Department of Labor (DOL) regulations will exceed the California regulation. In the past, employers within California have not been required to adhere to the Federal DOL minimum threshold because California’s requirements have exceeded the federal regulations. However, California employers will now have to adhere to the higher of the two regulations, which means complying with the new DOL regulations.
The new requirements go into effect as of December 1, 2016, and will be subject to indexing changes every three years. The next index adjustment will not take effect until January 1, 2020, and will be based on a 40th percentile of salaried employees in the lowest wage region in the U.S.
Effective 12/1/16, employees who are classified as exempt under the Executive, Administrative and Professional exemption (with the exception of Computer Professionals in California which is higher) will be required to be paid a minimum of:
$913.00 per week which equates to $47,476.00 annually
Of course, in addition to the minimum pay requirement, the employee must also meet the duties test as is required now.
The new regulations also made an adjustment to the “Highly Compensated Employee” (HCE) exemption to a higher amount of $134,004.00 annually.
The regulations add a new component that will allow employers to take non-discretionary payment for bonuses, commissions and other forms of incentive pay into consideration in meeting the new exempt employee minimum salary requirement. The employer may use up to 10% of the total exempt threshold by way of production incentive type payments made no less than quarterly. This allows an employer to use up to $91.30 per week in production based payments towards meeting the minimum weekly exempt compensation lowest level of $913.00 per week.
Additionally, employers who use the payment of production incentive pay to meet the minimum weekly payment will be allowed to make ONE additional payment at the end of each quarter if, within that quarter, an employee falls below the minimum DOL limit for the exemption, as long as the additional payment is made by the end of the next scheduled pay period.
The new regulation made no changes to the exempt duties tests which must be met by the employer in addition to the compensation minimum thresholds.
Employers should start to develop strategies now as to how they will structure their workforce to meet these new requirements, as many of your employees currently classified as exempt may fail to meet the compensation requirements under the new DOL regulations.
Employers should be very mindful to take into consideration work that is currently being done by exempt employees after normal work hours, or beyond the employee’s standard 8 hour work day, as this will need to be factored into the strategy adopted by the employer to comply with the new regulations.
Employers with questions may contact Allardyce Resources LLC for assistance, as well as for help to develop a strategy that best fits your needs in order to be prepared to comply with the new regulations by December 1, 2016.
For more information you may visit the DOL website: Click here