Question: I heard the Department of Labor changed the salary threshold for employees who are exempt from overtime pay. Does this mean some of my California employees are now exempt from overtime pay requirements?
Answer: The new Federal minimum salary for classifying employees as exempt will have little effect on California exempt employees because the California minimum salary for exempt employees is higher than the new Federal salary threshold.
To be properly classified as an employee who is exempt from overtime pay requirements the employee must earn a minimum salary and perform specified exempt job duties. On April 23, 2024, the federal Department of Labor (“DOL”) announced a final rule increasing the minimum Federal salary requirements for classifying executive, administrative, professional, outside sales, and computer employees as exempt from Federal overtime requirements. Beginning July 1, 2024, the Federal regulations will require employees who qualify for these exemptions to earn a minimum salary of $844.00 per week/$43,888.00 per year. Then, on January 1, 2025, that amount will increase again to $1,128.00 per week/$58,656.00 per year.
This announcement prompted many California employers to wonder whether the DOL’s rule will significantly change the minimum salary for exempt employees in California. Importantly, the DOL rule and Federal change in exempt salary minimum will have little impact on the salary requirement in California because the California minimum salary for exempt employees remains higher than the Federal salary requirement.
Both Federal and California laws require the payment of overtime to employees. Likewise, they both provide specific, limited exceptions for excluding certain employees from overtime pay requirements. California employers must comply with whichever overtime laws are more favorable to the employee. Because California’s laws regarding classification of employees as exempt are normally more favorable to employees than Federal law, California employers must follow the California minimum salary requirements and duties tests for exempt employees.
To satisfy California’s minimum salary requirement for exempt executive, administrative, and professional employees, such employees must earn a predetermined minimum monthly salary of at least twice the state minimum wage for full-time employment. This amount changes based on California’s existing minimum wage. Currently, employees must earn a minimum monthly salary of at least $5,546.67, which is an annual salary of $66,560.00. The exempt salary minimum is different for qualifying fast food, healthcare, and outside sales workers, computer professionals, and physicians.
The DOL’s rule also increases the salary minimum for the Federal overtime exemption for highly compensated employees. This Federal exemption applies to employees in high-level, highly compensated positions who are 1) paid at least $684.00 per week, annualized to at least
$107,432.00, 2) primarily performing non-manual work, and 3) customarily and regularly performing at least one of the exempt duties of an exempt executive, administrative, or professional employee. However, there is no California exemption for highly compensated employees. To qualify under California’s executive, administrative, or professional overtime exemptions, the employee must spend at least half of their time performing specific exempt duties. Consequently, the Federal exemption for highly compensated employees is inapplicable to California employees because California’s exemption requirements are more favorable to employees.
California employers should take care when classifying employees as exempt from overtime and be certain to follow the correct law. The exemption analysis is based on both the employee’s salary and specific job duties and is fact dependent.