California Overtime Rule

California Employers Must Remember that They Are Subject to a Different Salary Threshold That Will Rise Over Time

California has its own wage and hour law that has its own salary basis test for its white-collar exemptions: 40 hours x twice the state’s minimum wage. Currently, the minimum wage is $10 per hour; therefore the minimum salary threshold is $800 per week (40 hours x 2 x $10), or $41,600 per year – about $6,000 below the new Federal OT rule’s $47,476 salary threshold.  But the California minimum wage will rise over time until it reaches $15 per hour by 2022, and then it will continue to rise based on a statutory-required formula.  The new Federal OT Rule’s salary threshold may also rise every three years (the next time will be in 2020).

This means that employers will have to pay careful attention to how the thresholds change over time to ensure they are classifying their employees properly. For example, beginning January 1, 2019, when California’s minimum wage reaches $12 per hour, the threshold for California employers will be $49,920 – higher than the federal threshold, which may necessitate another classification change unless the employer raises the employee’s salary.

California’s “Primary Duty” Test Still Applies

California employers must remember that – regardless of the salary threshold – the state requires employees to be “primarily engaged” in exempt duties to qualify as exempt. This is different than the Federal standard, even under the revised law, which did not revise its duties tests (although some had thought the DOL would revise it make it more similar to California’s test).  This means that more than 50% of an employee’s time must be spent engaging in the activities that earn the exemption (e.g., depending on the exemption, performing such activities as supervising others, exercising independent discretion and judgment, managing a subsection of the company, or performing tasks that utilize the skills learned in their advance degree).  Thus, even if a California employer pays someone enough under the Federal and state standard, it may still not qualify them as exempt under California law.

California Does Not Have an Exemption for Highly Compensated Employees

The new rule also raises the salary threshold for highly compensated workers (subject to a different duties test) from $100,000 to $134,004. This is equal to the earnings of the 90th percentile of full-time, salaried workers nationally.  However, California employers must be aware that California does not have the same or a similar exemption, and therefore an employee meeting the new rule’s requirements may not be exempt under California law.

California Does Not Permit Employers to Include Non-Discretionary and Commissions in Satisfying the Salary Basis Test

The new federal rule permits employers to satisfy up to 10% of the salary threshold with non-discretionary bonuses, incentive payments, and commissions, so long are they are paid at least quarterly. However, the California rules do not allow for this.