New Regulations Require Minimum of $47,476 Paid
to Salaried Employees by December 1, 2016

russia-95311_1280Does your business have any salaried employees that are paid less than $47,476 per year?

If so, the new changes to the Fair Labor Standards Act, starting Dec. 1, 2016, will have an impact on your business.

Please check out the guidance  below to get answers to the most common questions by California’s employers and small and medium sized businesses.

LEGAL ALERT: On November 22, 2016, a federal judge in the Eastern District of Texas entered just such an injunction, enjoining the Department of Labor from implementing the new rules on a nationwide basis. The new law is now in a state of limbo, with employers awaiting the status of the court case to know whether to implement or abandon the requirements of the new DOL rules.  Due to the impending presidency by president-elect Donald Trump, it is also possible that the Department of Labor will choose not to appeal the decision.  Please read all updates below.  A copy of the Texas order is located here

Overview of the New Requirements

The Fair Labor Standards Act (FLSA) is the federal labor law that sets minimum wage and overtime standards for employees.   The FLSA is enforced by the U.S. Department of Labor’s Wage and Hour Division, and covers more than 135 million workers at more than 7.3 million establishments nationwide.

There is no exemption from the FLSA for small businesses. The FLSA applies to employers with a an annual gross volume of sales made or business done totaling $500,000 or more, and to employees engaged in interstate commerce or in the production of goods for commerce. In addition, employees of certain entities automatically, including hospitals; businesses providing medical or nursing care for residents; schools (whether operated for profit or not-for-profit); and public agencies.

The New Changes

Recent changes to FLSA regulations have increased the minimum salaries for exempt employees, which impacts California employees who are currently being paid less than $47,476 per year.

  • Exempt employees must now be paid a minimum of $47,476 annually in order to be considered “exempt.”
  • The changes go into effect on December 1, 2016.

In the past, California employers did not have to worry about the federal salary minimums for us exempt employees, because it was generally so much lower than what was previously required in California. However, now any employees who are classified as exempt employees must be paid at least $47,176 per year.

Employees Affected

The Employees that are affected typically include managers, executive assistants, human resources professionals, business development individuals, marketing professionals, teachers, and others. If you are not sure whether your business’s employees are correctly categorized, check out our Exempt v. Non-Exempt FAQs.

What Steps do You Need to Take?

There are number of options for responding to the new regulations. These range from raising salaries to the federally-required level, or reclassifying salaried employees to being nonexempt employees.

Action Guide: What You Must Do

If your business pays any employees less than $47,476, here is what you must do:

  • Evaluate. Evaluate potentially affected employees and determine whether they should have their salaries raised to $47,476, to keep them exempt from overtime/meal/rest break rules and other FLSA requirements; or whether they should be converted to hourly employees.   Please remember that certain types of employees are deemed exempt from FLSA and wage/hour protections, including employees that are in professional, administrative, creative, and other types of professions.
  • Exempt or Non-Exempt? If you are not sure how to categorize your employees and whether they are exempt or non-exempt, please check out our handy Exempt v. Non-Exempt FAQs or our Exempt v. Non-Exempt Quiz.
  • Issue Postponement Notices. If you already implemented changes and notified employees that they would be either receiving raises or converting status, and now wish to postpone the change due to the Texas Injunction, a draft/sample notice is provided here. Please remember to be cautious about any potential breach of contract claims, especially if the new raise/conversion was based on changed employment circumstances. Please get legal advice unique to your situation in these circumstances.  DOWNLOAD HERE.
  • Stay Tuned. Stay tuned to hear about what happens in the eastern district of Texas federal court to learn whether the new law will be taking effect or whether it will be abandoned by the new president-elect and his administration.

The Texas Injunction: What Does It Mean?

Late in the afternoon on November 22, Judge Amos Mazzant of the U.S. District Court in Sherman, Texas issued an order granting an injunction which will at least delay and possibly derail the changes to the overtime rules under the Fair Labor Standards Act (FLSA), which are scheduled to go into effect on December 1.

Twenty-one states filed an emergency motion for a preliminary injunction in October to halt the rule. They claimed that the DOL exceeded its authority by raising the salary threshold too high and by providing for automatic adjustments to the threshold every three years.

Employers are asking what they should do now and what happens next. Some suggestions:

  • If you procrastinated and have not made the changes or informed employees of your intended changes, do nothing for now. Time will tell whether the rule will remain, be modified or revert to the current rule.
  • If you have made the changes or have notified employees of new classifications or new pay rates, you may wish to stay the course. Taking away pay increases now will not only affect employee morale, it could lead to wage and hour complaints, especially if part of the reason for reclassification was that the employees did not meet the duties tests which were NOT changed by the new regulation.
  • If you do not want to implement the changes because of the Texas injunction, you must notify your employees. A draft/sample postponement notice is available for download here.

As far as what the future holds, it is hard to say. The court could make a decision between now and December 1 or it might delay even longer. Once that decision is made, the issue could end up before the U.S. Supreme Court. If nothing is done between now and January 20, the new administration could decide not to defend the rule promulgated by the DOL, an arm of the federal government. The future of the entire update is now uncertain as the update is already a target for repeal by House Republicans in the new administration. The changes will not be required on December 1st, and possibly not at all. We will continue to monitor the situation.

Common FAQs

Do the New FLSA Regulations Supersede California Law?

Yes. The FLSA preempts states laws that have lesser protections or standards; meaning that FLSA provides a “floor” for all states. Some states, like California, require higher standards than what is required by federal law. In those cases, such as in California, California law will apply because it requires greater than what is minimally required by federal law and the FLSA.

What About Part-Time Employees?

The new FLSA amendments do not address part-time employees. In the past, it was acceptable to pay exempt employees who work part-time schedules the minimums, but the new federal regulations do not allow the proration of weekly salary. So, part-time employees will have to still be paid the new minimum of $913 per week.

How Much Must be Paid in Salary?

Up to 10% of the salary level can be met with bonuses and commissions. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, however, such payments must be paid on a quarterly or more frequent basis.  Thus, an employer may pay an exempt employee working under an incentive plan 90% of the salary level.  At the conclusion of the quarter, if the employee has not received bonuses or commissions equaling or exceeding 10% of the salary level for 13 weeks, an employer may make a “catch-up” payment within one pay period after the end of the quarter.

Timing of Changes and Payroll Schedule

December 1 is a Thursday, which means that salary increases to ensure continued use of the exemption for weekly/biweekly employees must be made for the workweek (or pay period) that includes December 1.

Getting Legal Help

AXIS Legal Counsel’s Business Practice provides legal advice to numerous small businesses with a variety of legal matters, including labor/employment matters, business law, risk management / insurance,  , intellectual property, healthcare, crisis management, technology, statutory/legal compliance, and business litigation.  For information on retaining AXIS Legal Counsel to represent your business in connection with any matter, contact or call (213) 403-0130 for a confidential consultation.


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