LOS ANGELES, Nov. 30, 2016 /PRNewswire/ -- Effective December 1, 2016, the new United States Department of Labor (DOL) regulations, with respect to overtime pay, commonly referred to as the "Final Rule," and its applicability to "exempt" employees goes into effect. By the Final Rule, 4.2 million workers nationwide currently not eligible for overtime pay will automatically qualify as "non-exempt" employees entitled to overtime pay. The DOL now requires all California employers to align their policies with the "Final Rule." Approximately 400,000 employees in California may be immediately effected.
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 bright-line divide 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, it gets trickier. 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.
What To Expect
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. Certainly, several attorneys are already searching for employers not currently in compliance with the Final Rule. Employers should anticipate widespread litigation – potentially class actions depending on the size of your company or quasi-class actions, such as Private Attorney General Act of 2004 (PAGA) complaints regardless of the company's size. Employers not already adjusted for the upcoming overtime policy should expect a tidal wave of lawsuits in the days to come.
What To Do
Employers used the "exempt" classification as an excuse to work its employees late-nights and on weekends, without keeping track of their hours. That luxury no longer exists. 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 timesheets or clocking in-and-out.
Don't subject your company to attorneys' fees, statutory penalties, possible class actions and not to mention your own litigation costs. It's simply not worth it. Keep track of your employees' hours, and if your pay period begins before December 1, 2016, pro-rate the increase in salary or make sure you pay overtime.
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. For more information on Section 558.1, stand-by for further analysis from Ryan C. C. Duckett and Jeffrey F. Gersh.
Please note that nothing herein constitutes legal advice. For more information about the Final Rule, contact Ryan Duckett ([email protected]) or Jeffrey Gersh ([email protected]) at (818) 444-4500.
Heidi Hubbeling Director of Marketing Stubbs Alderton & Markiles, LLP [email protected]