New Regulations from the DOL

Recently, the Department of Labor issued new regulations for the salary threshold for overtime exemptions. The law will go into effect on December 1, 2016. The intent is to have the new guidelines fully in place for 2017. The law provides salary limits that determine which white-collar, salaried employees may be entitled to the Fair Labor Standards Act’s minimum wage and overtime pay protections.

The new regulations rule would update those guidelines. The guidelines currently contain a salary threshold of $455 per week (or $23,660 annually) for exempting employees from overtime pay. The new regulations would change that threshold to $913 per week (or $47,476 annually), raising the threshold considerably. It also provides for updates to the figures every three years, to prevent the salary level becoming insufficient going forward.

How that Compares to the FLSA

Under the Fair Labor Standards Act (FSLA), which was first enacted in 1938, employees are entitled to wages at or above the federal minimum wage. Employees must be paid at time and a half for overtime work exceeding 40 hours in any work week.

“The salary level test — the subject of these new regulations — requires that an exempt employee be paid at or above a minimum specified amount”

Employee Classifications

Employees who are properly classified as executive, administrative, or professional are considered “exempt employees.” Those in the workforce who do not fulfill the exempt definitions are considered “non-exempt,” and must be paid overtime under the US DOL guidelines. Employers have the burden of demonstrating a worker is exempt from the overtime provisions by satisfying three tests.

The Exemption Tests

1. The salary basis test: the employee must be paid a fixed salary, rather than on an hourly basis, and the amount paid each week may not be tied to hours worked or adjusted to conform to those hours.
2. The duties test: the individual’s job duties must primarily involve executive, administrative, and professional duties as defined by the Labor Department regulations.
3. The salary level test: This test is the subject of these new regulations. The salary level test requires that an exempt employee be paid at or above a minimum specified amount, under the “highly compensated employees” section of the regulations. It should be noted that here in California, the salary level test for exemptions is currently at a higher amount than is set by the current U.S. Department of Labor regulations.

The Impact

The update to the law impacts an estimated 4.2 million workers. Those affected will either gain new overtime protections or get a raise to match the new salary threshold.

Who Does the Law Help?

Who comprises these workers? A little over half (some 56 percent) are women. Women, then are the primary beneficiaries of the change to the law. It is estimated that approximately 2.4 million women will be impacted by the change.

The data also found that:

1. 53 percent of the affected workers have at least a four-year college degree; and
2. More than 3 in 5 (61 percent) are age 35 or older

When the law goes into effect, a large segment of the population should begin receiving higher wages.  According to the Dept. of Labor, about 35 percent of full-time salaried employees will now be eligible for overtime or a raise.

“The current level isn’t even enough to keep a family of four out of poverty”

Labor groups have been fighting to deliver this change to the American worker for over a decade, saying the change was a long overdue necessity. These groups consider these new regulations a victory for their cause. They argued that people were putting in 50 to 60 hours a week without overtime. Unions also ran the numbers, and discovered many were earning less than the minimum wage, when overtime was taken into account.

“The current level isn’t even enough to keep a family of four out of poverty,” said Judy Conti, federal advocacy coordinator for the National Employment Law Project, a nonprofit organization that advocates for workers. “It is not at all reflective of somebody who is an executive or a professional.”

Relief for Low and Middle Income America

The Obama administration’s long-running effort to aid low- and middle-income workers whose paychecks have not budged much in the last few decades aims to make a difference with this ruling. As the top earners in America have seen compensation soar, they are in the minority. The current rules change is only the third update to the salary threshold for overtime in the past four decades. The administration says it it thus long overdue.

The Labor Department estimates the change will boost workers’ wages by $12 billion over the next 10 years. The new rule calls for the income threshold to be updated every three years based on inflation, the department projects the threshold could rise to more than $51,000 by 2020. Proper implementation of the rules will make a significant difference in the lives of middle class Americans.

The Takeaway

So pay attention, read through the requirements, and if appropriate, have a chat with your employer about plans to implement the new policy. If you are unsure of how these regulations affect you, contact an experienced employment attorney near you, and congratulations on that raise!

Lazear Mack, LLP
Employment Law Attorneys
436 14th Street, Suite 1117
Oakland, CA

510-735-6316

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