FINAL RULE Released: Fair Labor Standards Act
Overtime Regulations
Impact on California
Employment and Labor Law | In November 2015, the Department of Labor (DOL) proposed amendments to the federal exempt versus non-exempt employee classification. On May 17, 2016 the DOL released its long awaited final regulations making changes to Part 541 governing overtime exemptions under the Fair Labor Standards Act (FLSA). This means that, for the first time in many years, California employers must pay attention to the U.S. DOL’s changes and comply with overtime rules at both the federal and state levels.
As expected, the final rule includes a significant increase to the salary threshold and automatic increases in the future. These will present considerable challenges to employees and employers.
Here are the key elements of the new regulation that you need to know now:
Federal Salary Threshold Now Exceeds The California Threshold
The U.S. DOL set a new threshold at $47,476 a year, higher than California’s current threshold, which is double the current state minimum wage. Since California’s minimum wage rose to $10 per hour in January of this year, the state’s overtime salary threshold has jumped to $41,600 a year. Because the federal level is higher, California employers will need to follow it to determine which employees are eligible for overtime pay. The increase in the salary threshold will also result in employees that are currently exempt in California being reclassified as non-exempt, which will have an adverse impact on workplace flexibility.
Federal Rule’s Automatic Increases Mean That California Employers Will Need to Remain Aware of Both the Federal and State Thresholds to Ensure Compliance
The DOL reduced the frequency of the automatic increases in response to concerns raised by the employer community. Instead of annual increases, the threshold will be adjusted every 3 years to maintain the level at the 40th percentile of full-time salaried workers in the lowest-wage Census region. Automatically updating the salary threshold, however, does not allow the government to take into account changing economic conditions, specific impact on certain industries, or regional differences. It also denies the public the ability to have input on the threshold as required by the regulatory process.
The Federal Rule Did Not Change Duties Test But California Employers Must Continue To Follow the State’s 51% Rule
California employers will need to continue to apply the duties test when categorizing employees. In addition to satisfying the salary threshold, executive employees in California must engage in exempt tasks at least 51% of the time that they work in order to be classified as exempt.
California Employers Remain Subject to California’s Law When More Favorable to Employees
While federal policy only allows overtime pay based on a 40-hour work week, California employers must continue to comply with the state’s 8-hour workday restriction which allows eligible employees to claim overtime based on an 8-hour workday.
Effective Date is December 1, 2016.
With the rule going into effect on December 1, 2016, HR professionals should review their current workforce immediately to determine which employees are affected, whether to re-classify those employees, and execute a communications strategy. HR should keep in mind the periodic adjustments and set a regular review process.
It is important to note that every employment law situation is unique and this Employment Law Legislative Update is not a replacement for legal counsel. If you have questions on how these changes may affect your business, contact the Employment Law Department at Young Wooldridge, LLP.
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