Huge Change to Federal Rule about Who is Exempt from Overtime—Double or Nothing!

Until December 1, 2016, an employee may be paid a fixed salary, with no overtime regardless of the number of hours worked, if that employee fulfills two conditions:

  1. The employee’s salary is greater than $455 a week, or $23,660 per year; and
  2. The employee’s duties are executive, professional, or administrative, such that the person has “duties” which include the use of independent judgement and decision-making.

As of December 1, 2016, the first of these two criteria changes quite radically, so that the two conditions are:

  1. The employee’s salary is greater than $913 a week, or $47,476 per year; and
  2. The employee’s duties are executive, professional, or administrative, such that the person has “duties” which include the use of independent judgement and decision-making.

This new rule, promulgated by the Executive Branch of the federal government, pursuant to the Fair Labor Standards Act (FLSA), is over 500 pages long and is incredibly complex and detailed.  However, the essence of the new rule is very simply stated—it raises the “bright-line” salary test, so that the foggier, less clear duties test will not apply to more than 4 million workers who earn between $23,660 and $47,476.

To summarize—employees cannot be treated as salaried and exempt from overtime after December 1, 2016, unless they earn about twice as much as they earn right now.

Employers will take various actions to address this issue:

  1. Where there is a collective bargaining agreement (CBA) in place providing for insufficient salaries, the parties will probably be required by a severability clause to see the salary as unlawful and therefore re-open this section of the contract to negotiate some alternative.
  2. Some employers will simply raise salaries above $47,476, particularly for salaried employees who are close to that amount already.
  3. Some employers will change employees to “hourly” employees and have them track hours and pay them overtime for all hours over 8 in a day or 40 in a week (or after 40 in a week if outside of California).
  4. Other employers will be either more or less creative in meeting the requirements of this new salary rule.  What is clear is that there must be considerable effort given to insuring that employers and Unions are fully cognizant of these new rules and are ready to implement them as of December 1, 2016.

For more information regarding the new federal rules on exempt salaried employees, contact your labor law counsel. 

By Bill Sokol | June 3, 2106

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