by Colleen McCarthy

The Department of Labor’s long-awaited new federal overtime rule will take effect December 1, 2016. Under the new rule, employees must earn a minimum of $47,476 per year to qualify as exempt from overtime. This new threshold is more than double the current minimum of $23,660 per year.

Although California’s minimum wage increase to $10 per hour earlier this year boosted the salary threshold to $41,600 annually, it is still almost $6,000 short of the federal threshold. These calculations will become more complicated as California’s minimum wage continues to increase annually and the federal threshold increases every three years, beginning January 1, 2010.

Exempt employees still have to meet California’s duties test – stricter than the federal law – to be classified as exempt. The duties test dictates that more than 50 percent of an employee’s time must be spent on activities such as:

  1. supervising others,
  2. exercising independent discretion and judgment,
  3. managing a subsection of the company, and/or
  4. performing tasks that utilize skills obtained from an advanced degree.

The intent of the new federal overtime rule is “to ensure that extra work translates to extra pay,” according to Dr. David Weil, administrator of the Wage and Hour Division. Opponents, such as the National Retail Federation, contend that many businesses will simply reclassify professionals as hourly workers and remove their existing perks, flexibility, and certain benefits.

California employers should audit their workforces to determine whether they have affected employees and then determine whether to raise salaries or reclassify employees as non-exempt. The DOL points out that employers have several options for responding to the rule changes:

  1. Raise employee salaries to meet or exceed the new federal threshold, provided that the employees’ job duties meet the duties test.
  2. Treat the employees as salaried non-exempt by paying overtime in addition to the employees’ current salary, as required. Converting to traditional hourly exempt is an option as well, and some employers may decide to take advantage of this opportunity to re-classify workers whom they may have concerns may not meet the duties test.
  3. Arrange the workload so employees don’t have to work overtime, or hire temporary staff or freelancers to make up the difference.

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Colleen McCarthy, Esq. is a Partner and the Employment Law Practice Group Leader at Ferruzzo & Ferruzzo, LLP. She is dedicated to representing and protecting employers with a particular emphasis on risk mitigation through preventative counseling and sound practical advice. Her objective is to educate employers about the complicated employment laws that impact their businesses to ensure that they are in compliance and to reduce the chance of costly litigation.