Q: ALERT: Is there a new law regarding who must be paid overtime?
A: Sort of – it is actually not a law, but rather a new regulation promulgated by the Department of Labor (“DOL”) without congressional action. The new rule amends the existing regulation that sets forth who is entitled to overtime pursuant to the Fair Labor Standards Act (“FLSA”).
As an initial matter, all non-exempt employees are entitled to overtime pursuant to the FLSA – and this new regulation does not change that fact – it only redefines who is eligible to be classified as “exempt”. The former rule provides that an employee can be exempt if he or she earns twice the minimum wage and passes a “duties test.” The former FLSA regulation adopted the minimum wage in the state where the employee worked to set the salary minimum needed for the exemption. Accordingly, in California, in order to be exempt pursuant to the FLSA, an employee generally needed to earn at least $41,600.00 per year ($10 (minimum wage) x 40 (hours per week) x 52 (weeks per year) x 2).
California has its own rules pertaining to who is exempt – but, until the new FLSA regulation it always mirrored the FLSA overtime salary threshold. In other words, prior to the new regulation both California and the FLSA utilized a “double the minimum wage” standard.
On May 18, 2016 the DOL raised the salary threshold amount needed to be considered exempt under the FLSA. The FLSA regulation is no longer based on a “double the minimum wage” standard. Pursuant to the new regulation, the minimum salary to be classified as an exempt employee is now $47,476.00 per year. The new regulation also establishes a mechanism to automatically increase that amount every three years. The new rule also redefines the “highly compensated exemption” that had a reduced duties test if the employee made $100,000.00 per year. The new regulation increases the salary threshold for the “highly compensated” exemption to those making a minimum of $134,004.00 per year.
The new regulation takes effect on December 1, 2016.
There are some interesting aspects of this new Federal regulation that will need to be watched carefully in California. Based on the new regulation, there may now be a difference between those that qualify as exempt under California law and those that are exempt under federal law. Specifically, those that make between $42,600 and $47,476 could be treated as non-exempt for the purposes of federal law but exempt for the purposes of California law. This is important because the FLSA only provides overtime for employees who work over 40 hours in a week while in California, non-exempt employees receive overtime for working over 8 hours in a day OR working over 40 hours in a week. Additionally, pursuant to the FLSA, there is no entitlement to meal and rest breaks while the California Labor Code makes them a requirement for all non-exempt employees. As such, unless the California rules are amended, or until California overtime rate increases so that “double minimum wage” exceeds the amount cited in the new FLSA regulation, employers could face a situation in which the salary threshold for daily overtime and meal and rest breaks is different than the threshold for weekly overtime. That said, it is expected that California, and its current legislative makeup, will quickly adapt to provide the most overtime and employee benefits as possible. And, even if they don’t, with the rising California minimum wage (set to hit $15 in 2022), it will be a short lived discrepancy. It would also not be surprising if California takes the position that it must follow the more stringent federal regulation even for the purposes of California overtime even if California does nothing to amend it own regulation. As such, caution is needed.
With wage and hour lawsuits on a dramatic rise, there is no doubt that this new regulation will create confusion and will increase the pool of plaintiffs eligible to make wage and hour claims. This likely means overtime for plaintiff’s attorneys. If you have questions related to this new regulation and its effects on your business, you should call your employment attorney.
This Legal Update / Bulletin is for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. The hypothetical question is posed to illustrate a point and does not contemplate all potential legal considerations This update should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.