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Risk Retention Group (ANI), a member of the Nonprofits Insurance Alliance Group recently sent our a risk alert email about exempt employee thresholds.

Read the email below…

“Risk Alert: Exempt Employee Threshold

Under federal and state wage and hour laws, Non-Exempt employees are required to be paid overtime and Exempt employees are not. Non-Exempt employees are typically paid by the hour for each hour worked in a pay period and receive overtime pay in accordance with applicable overtime rules. Exempt employees are paid a salary, are not compensated based on the number of hours worked, and do not receive overtime pay. The Federal Department of Labor [DOL] recently announced a substantial change in the overtime exempt salary threshold under the Federal Fair Labor Standards Act [FSLA].

To be classified as exempt, an employee must:

1. Meet a minimum salary threshold
2. Be paid the same salary every week
3. Meet one of the duties tests: professional, executive or administrative

In California, the current minimum threshold is $800/week or $41,600/year. The current federal minimum threshold is $455/week or $23,660/year.

The rule is that the higher of the state or federal threshold applies- which means that currently, in California, an exempt employee’s salary must be at least $41,600/year.

The new federal threshold, effective December 1, 2016, is $47,476/year.

When the new federal threshold goes into effect, it will, for the first time, be higher than the California threshold. Currently, nonprofits should assume that the new federal threshold of $47,476 will apply in California, effective December 1, 2016, and plan accordingly. The unusual circumstance is that California is the only state that requires paying nonexempt employees overtime pay for working over 8 hours in a day, or 40 hours in a week, whichever is greater. If California determines that the 8 hour overtime rule makes a difference in applying the federal threshold requirement, we will send out an update with that information.

There is already one exception for some Medicaid-funded services. The DOL will not enforce the updated salary threshold of $47,476/year for exempt employees until March 17, 2019 for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes with 15 or fewer beds.

Download a fact sheet from the Department of Labor here.

In order to prepare for the updated threshold:
Analyze which employees are affected
Decide whether to raise affected employee salaries or reclassify their jobs to nonexempt
Consider whether this may provide a hidden opportunity to reclassify some positions
Focus on job duties and update job descriptions
When notifying employees, directly reference the DOL amended rules:
‘The DOL has changed the threshold salary for exempt positions. For that reason, (fill in nonprofit name here) is changing the employee’s classification.’ “