Photo by: Fabian Blank
There has been much discussion about the Department of Labor (DOL)’s proposed changes to federal overtime rules under the Fair Labor Standards Act (FLSA). California employers may have mostly ignored the federal overtime rules because California’s rules are more protective of employees and have a higher threshold for overtime exemptions. However, if these rules go into effect, California employers will have to make some adjustments. Failure to properly classify employees as exempt vs non-exempt and follow overtime rules could be costly for employers.
What Are the Proposed Changes to Federal Overtime Rules?
Under FLSA regulations, an employee is exempt from the right to overtime pay if s/he meets the following 3 requirements:
- Paid on a salary basis regardless of the number of hours worked;
- Receives a salary of at lease $455/week or $23,660/year; and
- Satisfies the duties tests for exempt employees (executive, administration, professional, computer, and outside sales regulations).
The DOL proposed increasing the salary threshold from $455 per week to $970 per week ($50,440) annually. The salary threshold for the highly-compensated employee exemption would increase from $100,000 to $122,148 per year. Thus, employees who earn less than these amounts would be considered non-exempt employees and would be entitled to overtime.
How Would the New FLSA Rules Affect California Employers?
Currently, to be exempt in California, an employee must earn a minimum monthly salary of two times the state minimum wage, which amounts to $800 per month and $41,600 a year. This means that if the proposed rule goes into effect, more California employees would potentially be non-exempt under the FLSA and entitled to overtime.
For example, if the proposed rules go into effect in 2016:
- Employees making less than $50,440 would be nonexempt under federal law and entitled to overtime under the FLSA rules;
- Employees making less than $41,600 could also be nonexempt under California law; and
- Employees making more than $41,600 but less than $50,400 could be exempt under California law but nonexempt under federal law and entitled to weekly overtime under the FLSA.
Employers must comply with the law that gives the most protection to employees.
PRACTICAL TIP: If you are a business owner, you may want to identify the positions that may be impacted by the change and assess the financial impact on your business if you had to pay these employees overtime versus increasing their salaries. Employers should also take this time to determine how much lead time will be necessary to implement any changes by your payroll and timekeeping vendors and assess whether training regarding timekeeping practices and general management of newly reclassified non-exempt employees would be beneficial and prepare accordingly.
Contact me at (949) 529-0007 if you have questions about California employment laws and paying employees.
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