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The New Overtime Regulations and their Effect on You and Your Business (June 2016)

The New Overtime Regulations and their Effect on You and Your Business

On May 18, 2016, President Obama and the Department of Labor (DOL), Secretary Thomas Perez, announced the publication of a final rule updating the overtime regulations. According to the DOL website, this bill “will automatically extend overtime pay protections to over 4 million workers within the first year of implementation. This long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compensated fairly for their hard work.”

The passage of the Fair Labor Standards Act has an exemption from the normal right to time-and-a-half pay for working more than 40 hours of work in a week. This exemption applies to certain executive, administrative, and professional workers. Since 1975, the salary threshold for this exemption has only been updated once, and currently sits at $455 a week, or $23,660 a year.

The final rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. The effective date of the final rule is December 1, 2016.

Specifically, the final rule:

1.  Sets the standard exempt salary level at $913 per week or $47,476 annually.

2.  Establishes a mechanism for automatically updating the salary and compensation levels   every three years to maintain the levels at set percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Here in California, this new rule will not have the effect that it may in other states. California has stricter overtime laws, setting the salary threshold at twice the state minimum wage. The threshold is set to rise to $41,600 in January when the state’s minimum wage is raised to $10 an hour.

While the President and his cabinet have painted this as a “win win for businesses and employees,” the implementation of this new rule may have several unintended and unwanted consequences that will directly affect those the new regulation was intended to help. Industry and business groups have largely denounced the changes saying they would lead employers to reclassify salaried workers as hourly employees, thereby stripping those workers of benefits and flexibility in the workplace. Many agree that the new rule will cause employers to reduce base pay rates, cut wages and bonuses or reduce hours to avoid paying overtime. Many salaried employees can work remotely. This flexibility helps them juggle their professional and personal lives. The law will require employers to track salaried employees’ phone calls made off-site, hours put into reports edited from home, and time put into reading and writing emails from phones or from home. If they don’t, they will risk lawsuits. The 16 to 25 million Americans who telecommute at least once a month will face particular challenges. Many businesses will respond by curtailing flexible work arrangements. They will force salaried employees below the threshold to do all work in the office, whether or not they would prefer to work remotely.

Whether or not you believe the new rules are good for you and your company, a firm understanding of the requirements is imperative. If you would like to discuss how these requirements might impact your business, or, have questions concerning compliance, please call our office at (949) 260-1430 for assistance.

Written by Brett Simpson