Accuchex Blog

Employee Classification, Overtime, And The Final Rule

Posted by Tristan Ruhland on Dec 6, 2016 9:00:00 AM

On December 1, 2016, the new Department of Labor (DOL) regulations, known as the "Final Rule”, went into effect and now dictates overtime pay and "exempt" employees’ status.


The Final Rule has now changed the employee classification of approximately 4.2 million workers nationwide for overtime pay by automatically qualifying them as "non-exempt" employees.  And in California, the DOL now requires all employers to adjust their policies with the "Final Rule."

It is estimated that approximately 400,000 employees in California may be impacted.

What Was Established With the Final Rule

Previously, California employees who worked at a managerial or other executive level and were paid a base annual salary higher than $23,660 were exempt from overtime. The Final Rule establishes a clear threshold between exempt and non-exempt employees by placing all employees making less than $47,476 annually or $913 per week into the non-exempt category – which means they are entitled to overtime.

This is over a 200% jump from the standard salary set in 2004.  Literally, any employee making under $22.85 per hour is now entitled to overtime regardless of his or her position.

Essentially, the Final Rule forces employers to either increase the gross salaries of all exempt employees making less than the new threshold, or in the alternative to ensure all employees under the threshold are paid overtime.

However, in California, if an employee works 9 hours in one day and 7 the next day, that employee is still likely entitled to an hour of overtime even if the work week balances at 40 hours – this depends on the "regularly scheduled" work week, and whether it is a 3 or 4 day work week rather than a 5 day work week.  

It’s Here

The Obama Administration through the DOL enacted this policy 6 months ago to give employers a chance to change their overtime policies.  The grace period is over.  As of December 1, 2016, employees who are not properly compensated will have the right to sue for failure to pay overtime. 

If an employee makes less than the threshold, an employer needs to have records to challenge an employee's overtime claim.   Employers should immediately implement a system to monitor the hours each employee works, whether it be enacting a policy prohibiting employees from working more than 8 hours in a day and 40 hours in a week, or requiring time sheets or clocking in-and-out. 

Also, the recently enacted Labor Code Section 558.1 holds individuals liable for a company's failure to pay overtime.  These individuals include managing agents, owners, directors or officers.

The Increasing Likelihood of Employee Lawsuits

Independent contractors working for grocery-delivery company Instacart have sued the company for a second time. The suit, according to  Consumerist, was filed in the Northern District Court of California and alleges that the company's refusal to classify its "shoppers" as employees has allowed it to deny them overtime, compensation for expenses like vehicle use and gas, and in some cases earnings at or above minimum wage.

"Instacart does not recognize itself as a grocery delivery service, instead calling itself a 'technology company that offers a proprietary communications and logistics platform,' " reads the suit.”In reality, its 'platform' assigns customer orders to workers, such as Plaintiffs, just as any dispatcher would assign work orders. Instacart uses these tech-heavy buzzwords to brand itself as something other than what it really is — a grocery delivery service subject to the same employment laws as any other employer."

“The shoppers’ and drivers’ services are fully integrated into Instacart’s business, and without them, Instacart’s business would not exist,” the suit further explains. “Instacart voluntarily and knowingly misclassified Plaintiffs and other Instacart shoppers as independent contractors for the purpose of avoiding the significant responsibilities associated with the employer/employee relationship.”

As a result of the previous suit, Instacart did reclassify some of its workers as employees in 2015, but for those who did 100 percent of their work inside of grocery stores. Workers who were out doing deliveries remained classified as independent contractors. The suit states that this proves Instacart "knew and/or recklessly disregarded that it was misclassifying its other Shoppers from the outset.”

The employee suit comes after other labor cases involving Uber which has tried to make similar arguments that Uber is a technology company and not a taxi service. Uber recently settled a class-action suit brought by its drivers in federal court in San Francisco for $100 million.

Getting the Expert Help You Need

An updated compliance strategy will help your organization meet its obligations, while providing accuracy and timeliness. So take time to understand the laws, prioritize employee and manager changes, and maintain accurate record keeping. 

Another key step in maintaining HR compliance and increasing your company's cost-effectiveness is to consider outsourcing. A professional payroll management and workforce solutions provider such as Accuchex can offer much-needed help with Human Resources needs and questions.

Accuchex is a full spectrum Payroll Management Services provider offering expertise in Time Management, Insurance and Retirement issues, as well.


Topics: overtime pay, california labor laws, employee classification, employee lawsuits, DOL, exempt employees

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