Contributors

Jennifer Woo Burns

Of Counsel

The Department of Labor (“DOL”) recently announced its final rule that increases the minimum salary requirements for employees to qualify for exemptions from minimum wage and overtime pay requirements under federal law effective July 1, 2024. This has raised questions and introduces the possibility of confusion for California employers who must navigate both federal and California law to determine and apply the standard that is most employee friendly. Not surprisingly, California law is more employee-friendly in this area because it has a higher salary requirement for the exemptions to apply.

Specifically, for the executive, administrative and professional exemptions (also known as the “white collar” exemptions), effective July 1, 2024, the new federal overtime rule increases the minimum salary for the white-collar exemptions to $844 per week ($3,657.33 per month or $43,888 per year). Then, effective January 1, 2025, the minimum salary level will rise to $1,128 per week ($4,888 per month or $58,656 per year). Thereafter, starting on July 1, 2027, further increases can occur every three years based on the current earnings data.

Unlike California, federal law has an additional “highly compensated” exemption under which the “required duties” standard for the exemption is relaxed. The new minimum salary for the highly compensated exemption is at least $844 per week ($11,080.33 per month or $132,964 per year) effective July 1, 2024. Then, effective January 1, 2015, the highly compensated minimum salary rises to $1,128 per week ($12,597 per month or $151,164 per year), also subject to further increases every three years starting on July 1, 2027.

In contrast, under California law, there is no “highly compensated” exemption so there is only one minimum salary standard for the white-collar exemptions—currently $1,280 per week ($5,546.67 per month or $66,560 per year). California’s minimum exempt salary is tied to state minimum wage and equals double the current state minimum wage based on a 40-hour work week, so is subject to increase annually if the minimum wage increases. As California’s minimum exempt salary threshold remains higher than the increased federal minimum salary standard, California employers need only to meet the California standard. Therefore, these new federal standards should not impact California employers.

Note that under both state and federal law, the minimum salary amount is not the only requirement that must be met for the overtime/minimum wage exemptions to apply. Specifically, the salary must be paid on a true salary basis (i.e., a fixed, pre-determined amount for which the employee is paid the full weekly salary for any week in which they perform any work, regardless of the quality or quantity of work performed), and the employee’s duties must meet certain criteria. Failure to meet the salary level, salary basis and duties tests will destroy the exemption and the employer can face substantial liability for unpaid overtime premiums, unpaid minimum wages, and in California, meal/rest break penalties and other corollary claims. As such, it is critical for employers to ensure that their exempt employees are properly classified as such, and they should continually review their exempt positions to ensure that they still meet the minimum requirements.