Changes to the Department of Labor’s Wage & Hour Rules
Every new year brings a number of changes to the laws that affect employees here in California and around the nation. The following is one of the first such changes of which employees should be aware. In July 2016, the U.S. Department of Labor is likely to raise minimum exemption salaries. This standard sets the salary requirements for any employee to be exempt from rules requiring an employer to pay him or her a premium for overtime work.
Key Provisions of the Proposed Rule
The Notice of Proposed Rulemaking (NPRM) focuses primarily on updating the salary and compensation levels needed for white collar workers to be exempt. Specifically, the Department proposes to:
- set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers ($921 per week, or $47,892 annually);
- increase the total annual compensation requirement needed to exempt highly compensated employees (HCEs) to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually); and
- establish a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption.
The Department’s proposal to set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers represents the most appropriate line of demarcation between exempt and nonexempt employees. This salary level minimizes the risk that employees legally entitled to overtime will be subject to misclassification based solely on the salaries they receive, without excluding from exemption an unacceptably high number of employees who meet the duties test. As proposed, this would raise the salary threshold from $455 a week (the equivalent of $23,660 a year) to about $970 a week ($50,440 a year) in 2016.
For the full text of NPRM 2015, see here
Absent any last minute complications, the U.S. Department of Labor plans to update its rules affecting the salary guidelines under which employers have to pay overtime. This means that absent fairly large salary increases (see above), employers will have to begin paying overtime to many previously exempt employees. This threshold will continue to increase automatically, to keep the salary levels up to date with inflation and other factors, such as the salaries of other exempted executive, administrative and professional employees.
What to Expect
Once the new limit is set by the DOL, employees should either: (1) begin receiving an increase in his or her salary commensurate with the new exempted threshold, or (2) be converted to non-exempt status and start receiving overtime. Workers who are currently classified as exempt employees, and whose salaries do not approach the amount set forth in the new DOL guideline, may wish to keep themselves apprised of their employer’s plans to address these issues.
Employees may wish to begin tracking their overtime hours, particularly if they have never done so in the past. You will want to get a better idea just how these new regulations may affect your take home pay. So, to recap: before the final rule is set in motion this July, if you are an exempt employee earning less than $50,440 annually, start tracking those hours, and total them for each work week.
A useful calculation is to divide one week’s salary by the hours worked per week. This calculation should produce the average hourly rate. This formula will provide a good idea if an employee is being appropriately compensated prior to any adjustments to salary are made by the employer. If the bump in salary offered results in a less than favorable hourly rate when divided by the hours worked as an exempt employee, and if the employee believes he or she might be better off as a non-exempt employee who is being paid overtime, it may be possible to negotiate a better deal.
When to Call an Attorney
If your employer attempts to skirt these guidelines, and does not address any discrepancies in pay under the rule, you should contact an employment attorney. Lazear Mack is here to help. (510) 735-6316
Lazear Mack, LLP
Employment Law Attorneys
436 14th Street, Suite 1117