New Federal Overtime Rules Issued May 18, 2016 under the Fair Labor Standards Act
On Wednesday, May 18th, the U.S. Department of Labor released their final overtime rules under the Fair Labor Standards Act.
SalaryUnder the new rules, effective December 1, 2016, the annual salary threshold at which an employee in California can be considered exempt from overtime pay will be substantially increased from $41,600 to $47,476, or $913 per week. An employee must be paid a predetermined and fixed amount that is no less than the new threshold. The changes will affect 4.2 million workers nationwide, doubling the annual salary threshold in some states. The Labor Department set the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage census region. The final rule includes a mechanism to automatically update the salary level requirement every three years to ensure that it remains a meaningful test for distinguishing between overtime-protected white collar workers and workers who may not be entitled to overtime pay and to provide predictability and more graduated salary changes for employers. The Department last updated these regulations in 2004, when it set the weekly salary level at $455 ($23,660 annually).
DutiesThe final rule is not changing any of the existing job duty requirements to qualify for exemption. It is important to note that salary alone does not determine whether a worker is exempt from overtime pay. Employers must also consider the duties of the worker and how much independent discretion they have to exercise in their duties including hiring, firing, managing, and supervising. In addition to earning at least the new salary threshold, in California, qualifying "executive, administrative, or professional" duties must be the majority of a worker's duties in order for the employee to be exempt from overtime pay. While employers have some time to prepare, it is important they make sure that they're properly classifying and paying employees, and tracking time accurately. The attorneys at Schneiders & Associates can deliver legal guidance on this and other wage and hour questions any California employer may have.
BonusesThe Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
Side AffectsMany employers already struggle with overtime costs. These rule changes affect wage and hour compliance for businesses of all sizes and can have a significant impact on their labor costs.