California Lawmakers Aim to Implement Overtime Rule Despite Federal Delay
By Lisa Nagele-Piazza, SHRM-SCP, J.D.
Apr 10, 2017 - SHRM
Lawmakers in California have proposed legislation to
increase the salary threshold for employees who are exempt from overtime pay to
$47,476—the same threshold that was blocked last year at the federal level.
California's exempt salary threshold is calculated by
doubling the minimum wage, so it increases with every minimum wage hike.
Currently, businesses with 26 or more employees must:
- Pay nonexempt workers at least $10.50 an hour.
- Pay exempt executive, administrative and professional workers at least
$3,640 per month ($43,680 annualized).
Employers with 25 or fewer workers must:
- Pay nonexempt workers at least $10 an hour.
- Pay exempt executive, administrative and professional workers at least
$3,467 per month ($41,600 annualized).
A.B.
1565 would increase the exempt salary threshold to the greater of $3,956 per
month ($47,476 annualized) or double the minimum wage, explained Michael Kalt,
an attorney with Wilson Turner Kosmo in San Diego.
The proposed legislation presumably would take effect
on Jan. 1, 2018, if enacted, he said. "It is presently scheduled to be heard in
the Assembly's Labor and Employment Committee on April 19, so we will get an
early test of its likelihood of passage."
Employers may be wondering what the reasoning is
behind the proposed legislation, especially since the state's exempt salary
threshold is already scheduled to exceed $47,476 for all employers by 2020.
"It is more symbolic than anything," said James
McDonald Jr., an attorney with Fisher Phillips in Irvine, Calif. "California's
Legislature is so opposed to the current administration in Washington that it
will likely try to put back for employees whatever the federal government takes
away."
Planned Minimum Wage Increases
The state minimum wage and exempt salary threshold are
scheduled to rise incrementally over the next few years as follows for
businesses with at least 26 employees (smaller employers have an extra year to
comply with each increase):
Year |
Hourly |
Weekly |
Monthly |
Annually |
2018 |
$11 |
$880 |
$3,813.33 |
$45,760 |
2019 |
$12 |
$960 |
$4,160 |
$49,920 |
2020 |
$13 |
$1,040 |
$4,506.67 |
$54,080 |
2021 |
$14 |
$1,120 |
$4,853.33 |
$58,240 |
2022 |
$15 |
$1,200 |
$5,200 |
$62,400 |
In its current form, A.B. 1565 doesn't distinguish
between large and small employers. If enacted, it would raise the exempt salary
threshold to meet the now-blocked federal overtime rule one year before it was
set to go beyond it for larger employers and two years early for smaller
employers in California, Kalt explained.
New Law, Same Analysis
If the proposed legislation is approved, employers
will essentially have to go through the same analysis as they did in 2016 when
they thought the federal threshold would be raised, Kalt said.
"Just as when the U.S. Department of Labor proposed
such an increased salary threshold, if this legislation passes employers will
need to consider how to treat those employees being paid a monthly salary
between the current threshold and the new $3,956 minimum," McDonald said. "If
they are switched to hourly pay and they work considerable overtime, it may be
less expensive simply to raise their salary to the new minimum."
He added that controls would have to be in place for
employees who are paid on an hourly basis to ensure that they do not work
unauthorized overtime.
"But such limits might make it difficult for them to
get the job done," he said. "It will require a job-by-job analysis."
It's important to note that a higher salary threshold
may not result in a raise for exempt employees who are currently earning below
the proposed minimum.
"Some employers will not be able to afford paying a
higher salary and may simply eliminate the position or reduce the number of
positions available," McDonald said. "This in turn will limit career
opportunities for those looking for entry-level management jobs."
Kalt said he thinks the bill will pass the
Legislature, but Gov. Jerry Brown could veto it.
The minimum wage was just raised with a two-tier
system that takes small businesses into account, he said. If this is enacted,
all employers would have to reach a higher standard in less time and Brown could
say that's too much, too soon, he added.
Democrats have a supermajority in both chambers of the
state Legislature, so that means they could override a veto. This would be a big
test to see how pro-business Democrats react, Kalt said.