U.S. Department of Labor Proposes Change to Executive Exemption


Paying employees higher wage is a hot topic in politics. Both local and federal officials are calling for higher minimum wages for employees, spurred on by movements like Occupy Wall Street. California always trying to be a leader in employee rights is raising its minimum wage to $10.00 in 2016. Moreover, some cities in California have separate higher minimum wages, such as San Francisco where the minimum wage is $12.25.

Now the U.S. Department of Labor ("DOL") wants to raise the rate of pay for exempt employees. Employees are either classified as exempt or non-exempt. If an employee is non-exempt they are entitled to be paid overtime, along with other regulations on their work hours. If an employee is classified as exempt they are paid a straight salary. However, an employer cannot arbitrarily determine an employee should be exempt, both the federal government and the State of California have strict requirements for which employees can be designated exempt. There are several types of exemptions; however, one of the most common is the executive exemption.

Under Federal law in order for an employee to qualify for the Executive Exemption they must meet the following criteria:

  • The employee must be compensated on a salary basis at a rate not less than $455 per week (approximately $23, 660 per year).
  • The employee's primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise.
  • The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent.
  • The employee must have the authority to hire or fire other employees, or employee's suggestion and recommendation as to the hiring, firing, advancement, promotion or other change of status of other employees must be given particular weight

Under the California Executive Exemption, employees must meet the following criteria:

  • The employee must earn a monthly salary equivalent to no less than two times the state minimum wage for full-time employment. (Full-time employment means 40 hours per week as defined in Labor Code section 515(c)). Currently, California's minimum wage is $9.00 an hour which means in order for an employee to under the Executive Exemption they must make $720 per week (approximately $37,440.)
  • Whose duties and responsibilities involve the management of the enterprise in which he or she is employed or of a customarily recognized department or subdivision thereof.
  • Who customarily and regularly directs the work of two or more other employees therein.
  • Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring or firing and as to the advancement and promotion or any other change of status of other employees will be given particular weight.
  • Who customarily and regularly exercises discretion and independent judgment.
  • Who is primarily engaged in duties which meet the test for exemption.

Currently, California's exemption requirements are obviously higher than the Federal government's requirements. However, under the proposed rule revisions by the DOL would surpass California's requirements, namely in the amount of salary paid. The DOL has proposed that the minimum salary for the Executive Exemption be raised. The proposal suggests a test that the minimum requirement would be set at the 40th percentile for weekly earning for full-time salaried workers. The estimate for 2016 by the DOL is $970 per week or $50,440 annually. This would mean California's salary requirement would no longer be sufficient, even when the California minimum wage is raised to $10.00 in 2016.

The proposed revisions are not yet final. The DOL is accepting comments of the proposed rule changes untilSeptember 4, 2015. After the comment period, likely in early 2016, the revisions will be implemented, if they are adopted as proposed. If the revisions are adopted, California employers must consider whether to give employees raises to meet the new standard or switch certain employees to non-exempt (hourly) employees.

The public can comment on the proposed revisions at the following website:http://www.regulations.gov/#!docketDetail;D=WHD-2015-0001

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