The Department of Labor recently issued final changes to the white-collar overtime exemption rules under the Fair Labor Standards Act (FLSA). The new regulations take effect Aug. 23, 2004.
For most California private employers, the changes will have little impact because California’s overtime exemption rules provide greater protection to workers and will continue to govern overtime pay practices. But for public sector employers in California—who are covered only by the FLSA—and private employers with workers outside the state, the new rules may trigger a need to update existing pay practices. Here’s an overview of key FLSA changes and how they compare to California’s regulations.
Salary Requirements
Under the new rules, exempt employees must earn a minimum weekly salary of $455. But the California minimum salary based on two times the current state minimum wage is still higher, currently at $2,340 per month ($540 per week).
The new federal rules also include a “highly compensated employee” test. An employee who earns total compensation of at least $100,000 per year will be exempt if the employee performs at least one exempt duty (see below) and does office or nonmanual work. California does not automatically exempt highly compensated employees.
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
Salary Docking
The federal regulations recognize circumstances when salary deductions can be made without affecting the employee’s exempt status. For example, you will be able to dock for an unpaid disciplinary suspension of one or more full days imposed for violating workplace rules. Note, however, that under California law employers can’t deduct for disciplinary suspensions that last less than a full week.
The new FLSA rules also add a “safe harbor” to protect an employee’s exempt status if an improper deduction is made. The protection will apply only if an employer has a policy prohibiting improper deductions that includes a complaint mechanism, and the employer reimburses employees for improper deductions. California law doesn’t recognize the safe harbor for improper deductions.
The Duties Tests
The new FLSA rules clarify the duties exempt employees must perform, but keep in mind that the California duties tests remain stricter. Here’s a look at the new FLSA duties tests:
- Executive exemption. To qualify, the employee must supervise two or more employees, have authority to hire or fire employees—or the person’s recommendations regarding hiring and firing must be given particular weight—and have as their primary duty the managing of a department, subdivision, or the whole enterprise.
- Administrative exemption. The employee must have the primary duty of performing office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers, and their primary duty must include exercising discretion and independent judgment on significant matters.
- Professional exemption. An employee qualifies as an exempt learned professional if their primary duty involves performance of work requiring advanced knowledge in a field of science or learning, even if some of that training was acquired on the job or in an apprenticeship. In California, the learned professional exemption excludes advanced knowledge acquired through apprenticeships and requires education beyond a bachelor’s degree. For the creative professional exemption under the FLSA, the employee’s primary duty must be performing work requiring invention, imagination, originality, or talent in an artistic or creative field.
- Outside sales exemption. An outside sales employee must customarily and regularly secure sales away from the employer’s place of business. In California, an outside salesperson is exempt only when they spend at least 50 percent of their time away from the employer’s place of business making sales.
- Computer exemption. The new FLSA rules haven’t changed the existing duties test for the computer employee exemption.