The Long-Awaited FLSA Salary Basis Update Is Finally Here – Everything California Private Schools Need to Know!

Category: Special Bulletins
Date: Sep 30, 2019 04:11 PM

On September 24, 2019, the U.S. Department of Labor (“DOL”) announced a final rule modifying the weekly salary and annual compensation threshold levels for white collar exemptions to FLSA overtime requirements. The final rule will become effective on January 1, 2020.  The new FLSA regulations will not have any impact on the overtime-exempt status of teachers at private schools, and/or other overtime exempt positions such as administrators, deans, and managers.  This is because pursuant to California law, private schools already need to pay twice the state’s minimum wage to satisfy the requirements for overtime-exempt status, which is greater than the new FLSA salary threshold.  Thus, while private schools in other states will benefit from the new DOL regulations, private schools in California will not see any benefit or impact from those regulations.

What Are The New Key FLSA Provisions?

The newly published FLSA regulations that become effective January 1, 2020, make the following changes:

  1. The weekly salary threshold level is raised from $455 per week ($23,660 per year) to $684 per week ($35,568 per year);
  2. The total compensation needed to exempt highly compensated employees is increased from $100,000 annually to $107,432 annually;
  3. Employers are now able to use nondiscretionary bonuses and incentive payments made at least annually to satisfy up to 10 percent of the new standard salary level.
  4. The rule also revises the special salary thresholds applicable to workers in U.S. territories and the motion picture industry.

Unlike the rescinded 2016 regulations, the new final rule does not include a provision for automatic updates to the salary threshold; however, the DOL has stated it intends to propose further updates to the salary thresholds at least every four years.

The new FLSA regulations do not make any changes to the FLSA duties tests, which in general also must be satisfied for an employee to qualify for the FLSA overtime exemptions.

Below is a comparison of the current and new FLSA Salary Basis Test:

 

2004 FLSA regulation

NEW 2019 FLSA regulation
(effective Jan. 1, 2020, available
here)

Minimum Weekly Salary for Executive, Administrative and Professional Employees

At least $455 per week
(or $23,660 annually)

At least $684 per week
(or $35,568  annually)

Minimum Weekly Salary for Administrative Employees Performing Functions Related to Academic Instruction or Training              

At least $455 per week ($23,660 annually), or salary equal to the entrance salary for teachers at the school   

At least $684 per week ($35,568 annually), or salary equal to the entrance salary for teachers at the school

Minimum Annual Compensation for Highly Compensated Employees

At least $100,000 annually

At least $107,432 annually

Inclusion of Nondiscretionary bonuses and incentive payments

Bonuses and incentives (including commissions) count only toward the total annual compensation requirement for highly compensated employees.

Bonuses and incentives that are made at least annually can now go towards 10 percent of the standard weekly salary threshold of $684/week;   the employer may make a “catch-up” payment within one pay period after the end of the year.

 

Other Pending Rulemaking

In addition to the new final rule regarding the salary thresholds, the DOL has issued proposed regulations and is currently considering new rules to clarify the rules surrounding the FLSA “regular rate of pay”. These regulations are currently under consideration and open to public comment. LCW is keeping a close eye on the DOL’s rulemaking process and will publish further updates when the DOL announces its final rules.

Impact On California Private Schools?

Private schools are subject to both federal and state wage and hour laws.  California currently imposes a minimum wage of $12 per hour for schools with at least 26 employees (or $11 per hour if less than 26 employees).  California minimum wage applies to private schools and is higher than the federal FLSA minimum wage of $7.25 per hour.  (NOTE: Some state wage laws are different for public schools.)  Private schools must insure that an employee who is treated as exempt from overtime meets both the FLSA and the California tests for overtime exemption. (Industrial Welfare Commission Wage Order No. 4-2001, section 4.C.) 

1. Teachers Are Only Subject to California’s Salary Basis Test, not the FLSA Salary Test.

Under the FLSA, full-time teachers, part-time teachers, and teaching assistants are exempt from overtime requirements because the definition of teaching is quite broad and there is no salary basis test for the teacher exemption. (29 C.F.R. sec. 541.303, Teachers.)

In contrast, under the California Labor Code, teachers at private schools must meet specific requirements to be exempt from overtime, including California’s salary basis test, which requires that a full-time private school teacher must earn the greater of either:

  1. No less than 100% of the lowest salary offered by any school district to a person who is in a position that requires the person to have a valid California teaching credential and is not employed in that position pursuant to an emergency permit, intern permit, or waiver; or
  2. The equivalent of no less than 70% of the lowest schedule salary offered by the school district or county office of education in which the private elementary or secondary academic institution is located to a person who is in a position that requires the person to have a valid California teaching credential and is not employed in that position pursuant to an emergency permit, intern permit, or waiver.  (California Labor Code, sec. 515.8)

Since the FLSA salary basis test does not apply to teachers, and private schools must still follow California law, the amendment to the FLSA regulations has no impact on private school teachers in California.

Additionally, teaching assistants, tutors, instructional aides, vocational instructors and other similar positions are not exempt from California overtime laws and must still be considered non-exempt employees in accordance with California law, even if they could be exempt under the FLSA.

2. Non-Teachers At Private Schools Must Meet the Stricter California Salary Requirements To Be Exempt From Overtime.

Overtime exempt employees other than teachers working at private schools, such as administrators, deans, managers, and supervisors also are not impacted by the new FLSA salary basis test.  These federal changes won’t have any effect on employers in California employers who already need to pay exempt employees, other than teachers, twice the state’s minimum wage to satisfy the requirements for exempt status.  With a minimum wage of $12 per hour (or $11 per hour if less than 26 employees), that is $49,920 in 2019 (or $45,760 if less than 26 employees.)  The California salary basis will increase to $54,080 on January 1, 2020 (or $49,920 if less than 26 employees.)  And that amount goes up as the minimum wage increases one dollar per year until it reaches $15 for all employers in January 1, 2023; at that time the minimum salary level for exempt status in California will be $62,400.

Even though many cities have their own minimum wages, it is still the state’s minimum wage that triggers the minimum salary threshold for exemption analysis. 

3. California Private Schools Will Not Be Able To Utilize The FLSA's Highly Compensated Employee Exemption.

Although the FLSA contains a highly compensated employee exemption for employees earning over $107,342 no such exemption exists under California law.  Thus, private schools cannot utilize the FLSA's highly compensated employee exemption, as private schools are also covered by California law and must meet the exemption requirements under that law.

Next Steps for Private Education Employers

For California private schools, we expect changes will not be necessary as a result of the increased weekly FLSA threshold because the threshold is still lower than the salary basis required by the California state test.  Even though private schools are not affected by the new FLSA salary basis test regulations, the salary requirement is only half of the test for an employee to be exempt – the employee must also perform exempt job duties.  Since California job duty requirements for exempt status continue to be stricter than the FLSA job duty requirements, schools must continue to insure that their overtime-exempt employees also meet California’s duties tests for the executive, administrative and professional exemptions.  Therefore, this may be a good time to assess whether current exempt positions meet the salary threshold requirements and perform the appropriate duties to satisfy the teacher, executive, administrative, or professional exemptions under the California wage laws.

LCW’s wage and hour attorneys routinely conduct audits and provide wage and hour advice and counsel and are available to audit and/or advise whether you have correctly classified employees as exempt or non-exempt.  If you have any questions about this issue, please contact our Los Angeles, San Francisco, Fresno, San Diego, or Sacramento office.

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