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California’s Overtime Law Would Eventually Raise Salary Beyond FLSA Rule

A federal judge’s ruling put a halt to the Obama administration’s rules expanding overtime pay under the Fair Labor Standards Act. But, if your organization is based in California, a new proposal might require you to raise some employees’ pay anyway. State legislators recently proposed a law raising the salary threshold for exempt employees, similar to what the Department of Labor rule would have required.

The California rule mandates a monthly salary for exempt employees that is either $3,956 or double the minimum wage (currently $10.50 an hour), whichever is higher. California’s minimum wage is set to expand to $12 per hour in 2019, which means that salaries would then be higher than under the blocked FLSA rule. By 2022, when minimum wage is slated to increase to $15 per hour, the floor would exceed $60,000 per year.

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Other Details About the Legislation

  • Employers with 26 or more employees would have to pay non-exempt employees $10.50 an hour, and exempt employees either $3,956 a month or double the minimum wage, whichever is higher.
  • If enacted, the legislation will take effect January 1, 2018.
  • The bill will proceed to the General Assembly’s Labor and Employment Committee on April 19.

It’s also important to note that California’s exempt salary threshold is already slated to exceed $47,476 by 2020.

“It is more symbolic than anything,” James McDonald Jr., an attorney with Fisher Phillips in Irvine, Calif. tells the Society for Human Resource Management. “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.”

Will These Changes Affect Your Organization? It Depends

Of course, not all employers changed their policies in response to the news that the original overtime law wouldn’t be taking effect. In December of last year, PayScale data showed a dramatic drop-off in the number of employees earning between the old salary threshold and the new one:

It appears that many organizations decided to implement the changes anyway, regardless of whether or not the law would compel them to do so.

The happy side effect of the initial rule was that some employers have taken the opportunity to review their pay practices. Ultimately, some organizations (e.g. Walmart, Marshalls) opted to keep the new threshold. Others chose to pay for performance, using their compensation budget to reward results. Whatever their decision, thinking consciously about compensation strategy is always a positive step for the business.

Want to learn more about using compensation strategy to drive business results? Check out this year’s Compensation Best Practices Report.

Tell Us What You Think

How would this legislation affect your organization? We want to hear from you. Tell us your story in the comments.

Legal Disclaimer: The information provided is for informational purposes only. Although every reasonable effort is made to present current and accurate information, PayScale makes no guarantees of any kind and cannot be held liable for any outdated or incorrect information. If you have any concerns, consult an employment lawyer.

Jen Hubley Luckwaldt
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