On May 18, 2016, President Obama and Secretary Perez announced the Department of Labor’s final rule updating overtime regulations, to the disappointment of many employers. The new rule, which will automatically provide overtime pay protections to over four million workers within its first year of implementation, goes into effect on December 1, 2016.
The Department published a Notice of Proposed Rulemaking (NPRM) in the Federal Register on July 6, 2015 (80 FR 38515) and invited interested parties to submit written comments on the proposed rule at www.regulations.gov by September 4, 2015. The Department received over 270,000 comments in response to the NPRM from a variety of interested stakeholders. The feedback the Department received helped shape the Final Rule.
WHAT IS THE NEW RULE?
Previously, only employees who made less than $23,660 annually were automatically entitled to overtime wages. Additionally, any so-called “white collar” employees performing executive or administrative tasks who made more than the threshold were considered exempt from receiving overtime pay.
The new rule states that, effective December 1, 2016, anyone who is a salaried worker and makes less than $47,476 must be paid time and a half for any work beyond 40 hours a week. This includes administrative and executive workers.
WHO WILL BE AFFECTED?
Understandably, the loudest outcry against this new rule has been from lower-wage industries, such as hospitality and retail. Nevertheless, the overhaul affects any business owner who employs salaried workers previously classified as “exempt” under the administrative or executive exemptions. It also affects any employer whose workers earn less than $47,476 annually.
However, in reality, very few employees will see a wage increase as a result. The White House estimates that, nationwide, only about 4.2 million people will become eligible for overtime compensation under the rule. According to the U.S. Department of Labor, approximately 60% of those 4.2 million workers do not actually work any overtime hours. As such, the new rule will not change the pay rates of those employees. Only the remaining 1.7 million workers who do work overtime hours will get a raise, which amounts to about $718.00, on average, per year.
WHAT DO EMPLOYERS NEED TO DO?
California employers need not fret – at least not yet. California already requires overtime pay for employees making less than $41,600 per year, which is approximately $6,000 below the new Federal overtime rule’s $47,476 salary threshold. California also permits overtime wages for employees that work more than eight (8) hours per day, in contrast to the Federal rule, which only mandates overtime for work done in excess of forty (40) hours per week. But because California’s minimum wage is slated to increase several times over the next decade, employers will need to be mindful of the changes are re-classify their employees as necessary.
The Department of Labor has suggested four (4) options for employers wanting to comply with the new rule:
- Pay employees time-and-a-half for overtime work;
- Raise workers’ salaries above the threshold;
- Limit workers’ hours to forty (4o) hours per week; or
- Some combination of the above.
To determine which option is best for you and your company, it will be prudent to consult with an experienced employment attorney.
WILL YOU BE READY?
*This article is for informational purposes only, and does not constitute legal advice or create an attorney-client relationship. This article does not make any guarantees as to the outcome of a particular matter, as each matter has its own set of circumstances and must be evaluated individually by a licensed attorney.