On June 30th the U.S. Department of Labor (DOL) released a proposal that will impact current California Labor Laws regarding overtime pay.
The proposal seeks to update the current regulations that govern which executive, administrative, and professional employees are exempt from the Fair Labor Standards Act's minimum wage and overtime pay protections. The DOL last updated these regulations regarding white collar workers back in 2004.
The proposed rule will, if enacted, raise the minimum salary threshold required to qualify for exemption from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime requirements.
DOL Proposal for 'White Collar' Wage Exemptions and California Labor Law
The proposed regulations focus primarily on updating the salary and compensation levels needed for white collar workers to be exempt. Specifically, the DOL proposes to:
- Set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers;
- Increase the total annual compensation requirement needed to exempt highly compensated employees (HCEs) from $100,000 to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers; and
- Establish a mechanism for automatically updating the salary and compensation levels going forward.
The proposed regulations also ask for:
- Suggestions for additional occupation example
- Comments on the current duties test requirements
- Comments on the possibility of including nondiscretionary bonuses to satisfy a portion of the standard salary requirement.
The Department is not proposing specific regulatory changes on either of these issues at this time.
Implications for California Labor Law and Employers
What do these updates mean for California employers? The proposal would raise the salary threshold from $455 a week,the equivalent of $23,660 a year, to about $970 a week, or $50,440 a year, when finalized in 2016.
Since 2004, when the “white collar” exemptions were last amended, employers have seen an explosion of litigation under the Fair Labor Standards Act (FLSA). The number of FLSA cases filed in federal courts has more than doubled, and the DOL’s Wage and Hour Division also has increased its compliance audits and investigations of wage complaints in recent years.
These lawsuits have become increasingly costly for employers. In addition to government enforcement, a successful private litigant can recover payment of any back wages or overtime going back up to three years (longer under some state laws), liquidated damages of up to 100% for willful violations, and reasonable attorneys’ fees and costs.
According to The National Law Review, the DOL’s proposed changes "will likely only trigger more activity by private litigants and federal and state agencies. Employers that have not done a classification audit in the past several years may be particularly at risk and would be wise to consider the following practice pointers concerning worker classification:
- Evaluate the classification status of workers carefully at the outset of the work relationship to determine whether a worker is exempt or overtime-eligible. If you inherit a large number of exempt employees (such as following an acquisition or a merger), perform due diligence to determine if there is potential for misclassification liability.
- Conduct a privileged audit of your exempt workforce to determine what portions of your workforce will be affected by the proposed new rules. For example, assuming that the DOL’s projections are accurate, employers should be prepared to increase the salaries of exempt workers who earn less than $50,400 per year, to reclassify those individuals to overtime-eligible, or to take other measures to address the increased costs."
The Next Steps for the Proposed Changes
The next step in the rulemaking process is publication of the proposed rule in the Federal Register. The proposal will then be subjected to a comment period of sixty days. Thereafter, following review of the comments, the DOL will publish a “final rule” that may differ from the proposal issued today.
The effective date for the amended regulations will most likely be sometime in 2016.
The proposed regulations are available for review at www.dol.gov/whd/overtime/NPRM2015/OT-NPRM.pdf.
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