A federal judge in the U.S. District Court for the Eastern District of Texas has granted a nationwide preliminary injunction against the Department of Labor’s new overtime regulations. The regulations, which would have gone into effect December 1, 2016, would have dramatically increased the minimum salary threshold – from $23,660.00 to $47,476.00 annually – for employees to qualify as exempt from the federal Fair Labor & Standards Act’s overtime requirements. On December 1, 2016, the administration filed an appeal to the Fifth Circuit Court of Appeals. While the temporary ruling has been cheered by employers all over the country, the real question is what impact does this have on employers in California?
While the new regulations would have had some immediate impact on California employers that impact would have been substantially minimized by California’s current labor laws. California and the Federal Government both have laws concerning an employee’s rights to overtime which require employer compliance; however, courts typically apply whichever set of rules provides the employee with more rights and protection, and in 2016, California’s minimum salary requirement (and minimum wage) is substantially higher than the Federal minimum.
Under California law, the minimum salary threshold for employees to qualify as exempt from overtime is a salary that is no less than two times the state minimum wage for full-time employment. In 2016, that sum is $41,600.00, substantially higher than the current Federal minimum of $23,660.00, and not much less than the new proposed Federal minimum. As the minimum salary under California law is tied to the minimum wage rate, any increase in California’s minimum wage also increases the minimum salary threshold for employees to be exempt from overtime.
Earlier this year, California adopted a new minimum wage law, which goes into effect January 1, 2017. Under the new law, the minimum wage will increase each year from the existing $10.00 per hour to $15.00 an hour by 2022/2023. The increase will be phased in during that time, and will differ depending on the size of the employer. Employers with less than 25 employees will have a one year delay before each increase kicks in. The Federal case in Texas does not impact this new California law.
As the minimum wage increases in California, so will California’s minimum salary threshold for employees to qualify as exempt from overtime requirements. California’s new minimum wage law will cause the minimum salary threshold under California law to quickly pass the new minimum that was proposed under the now stayed Federal regulation. The following chart reflects the yearly increase in California’s minimum wage and its impact on the minimum exemption threshold.
California’s Scheduled Minimum Wage Increases (If No Increases Are Paused)
|Amount||26 Emp. or More||25 Emp. or Less||Min. Exemption Salary|
|$10.50/hour||January 1, 2017||January 1, 2018||$43,680.00|
|$11/hour||January 1, 2018||January 1, 2019||$45,760.00|
|$12/hour||January 1, 2019||January 1, 2020||$49,920.00|
|$13/hour||January 1, 2020||January 1, 2021||$54,080.00|
|$14/hour||January 1, 2021||January 1, 2022||$58,240.00|
|$15/hour||January 1, 2022||January 1, 2023||$62,400.00|
For an employee to remain exempt from overtime in California, each exempt employee’s yearly salary will need to remain equal to or above the increased amounts noted above. What is also very important to remember is that the minimum salary requirement is only one element in the test for determining whether an employee is exempt from overtime. To establish the exemption all the elements must be met or the employee will be entitled to overtime pay as well as other protections of the California’s wage and hour laws. To ensure compliance, please consult with an attorney that can help you navigate through the complicated Federal and California wage and hour laws and regulations.
For more information on the content of this article, please contact your regular Murtaugh Treglia Stern & Deily LLP attorney or Michael J. Murtaugh and/or Jessica A. Thompson at (949)794-4000.