The federal Department of Labor (“DOL”) recently released a final rule that increases the salary thresholds for three federal white-collar overtime exemptions (executive, professional and administrative) under the federal Fair Labor Standards Act (“FLSA”). California employers must still follow the California minimum threshold, however, which remains higher than the increased federal standards. Thus, this new federal threshold will not have much, if any, impact on employers’ California-based employees.
This new final rule increases the federal minimum threshold for salaried exempt employees from $684 per week ($35,568 annually) as follows:
- Beginning July 1, 2024 to $844 per week ($43,888 annually); and
- Beginning January 1, 2025 to $1,128 per week ($58,656 annually).
For California employers, both thresholds fall below the current California minimum exempt salary threshold, which sits at $66,560. California’s exempt salary basis regularly rises with the State’s minimum wage.
To calculate the salary basis in California, multiply the current minimum wage by two ($16 per hour for 2024, but watch the November ballot referendum to increase it to $18). Next, multiply that number by 2,080 hours (40 hours per week times 52 weeks per year). Currently, that is $16 x 2 = $32. $32 x 2,080 = $66,560.
Because California’s salary basis minimum is higher than the new DOL thresholds, California’s more restrictive law renders the federal DOL final rule moot for California employees. Always use the state minimum wage, not a local minimum wage, to do this calculation.
Under the federal final rule, an employer may also apply earned commissions or non-discretionary bonuses to meet up to 10% of the federal minimum salary threshold, so long as certain other criteria are met. California law, on the other hand, does not allow this and looks solely at an employee’s base salary to determine if the employee is paid the minimum salary basis to be considered exempt.
The federal final rule has an exemption for highly compensated employees (“HCEs”). Under certain circumstances, HCEs can be exempt from overtime regardless of their job duties so long
as their annual salary is high enough to meet the HCE threshold. Under the new federal final rule, the HCE threshold will be increased from $107,432 annually, as follows:
- Beginning July 1, 2024 to $132,964; and
- Beginning January 1, 2025 to $151,164.
Unfortunately for California employers, California does not have an HCE exemption and this federal exemption cannot be used for California employees.
Finally, the federal final rule establishes a mechanism for automatically increasing the federal threshold every three years, with the first update set to occur on July 1, 2027.
NEXT STEPS
Employers with operations or employees in states other than California should immediately review their exempt employees’ salaries (and duties) to evaluate the impact of the federal final rule and ensure that their employees are properly classified as exempt. Also, be sure to watch for potential legal challenges to the new final rule (as has happened in the past and is likely to happen again).
Employers with operations and employees exclusively in California can ignore this federal final rule.
Source: LightGabler
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