July 1, 2015 Proposed Changes to FLSA White Collar Exemptions Likely to Have an Impact in California

On Tuesday the Obama administration proposed changing the regulations governing the so-called "white collar" exemptions for executive, administrative and professional employees under the federal wage and hour law, the Fair Labor Standards Act (FLSA).  The most significant proposed change will dramatically raise the minimum salary for FLSA exempt employees from the current $455 per week ($23,660 per year) to an estimated $970 per week ($50,440 per year) in 2016, higher than the minimum salary for white collar exempt employees under California law.

Discussion

Both the FLSA and California law provide for white collar exemptions from overtime requirements.  To qualify, employees must: (1) Have job duties that satisfy specified criteria, including responsibilities that require discretion and independent judgment; and (2) Be paid a salary that meets or exceeds a certain minimum.  

California’s minimum salary for white collar exempt employees is set at twice the state minimum wage for a 40-hour work week.  Under the current $9 state minimum wage, California’s minimum salary is $37,440 per year.  When the state minimum wage increases to $10 per hour in January 2016, the minimum salary will increase to $41,600 per year.  California’s minimum salary has long exceeded the federal minimum, with the result that employees who satisfied the state minimum automatically exceeded the federal minimum.  

That will change under the Obama administration’s proposed FLSA regulatory changes.  If the proposed changes are adopted, the FLSA minimum salary will increase to an estimated $50,440 per year in 2016, which is $8,840 higher than the state minimum.  If this occurs, the difference between the state and federal minimum salaries will create a “gap” within which employees could be exempt from California’s overtime laws (including daily overtime and meal and rest period requirements) but not federal overtime laws.  

There is a possibility that the California legislature could eliminate the gap by raising the state minimum salary to equal the federal minimum.  But if not, employers who have exempt employees paid less than $50,440 annually will need to adjust their current pay practices to begin tracking hours worked by these "gap" employees and paying them overtime under federal law—which requires weekly, but not daily, overtime   As an alternative, employers can avoid the gap by either increasing salaries to the federal minimum, or reclassifying employees to nonexempt status and begin paying them both daily and weekly overtime. 

What This Means

There is a good chance the proposed FLSA changes will be adopted and go into effect in 2016.  Employers should identify any employees currently classified as exempt who may not meet the proposed new federal minimum salary requirement of $50,440, and begin planning what changes to make with regard to these employees.

This E-Update was authored by Aaron Buckley.  For more information, please contact Mr. Buckley or any other Paul, Plevin attorney by calling (619) 237-5200.