The DOL published new rules last week regarding who qualifies for overtime pay under the Fair Labor Standards Act (FLSA), raising the minimum salary threshold to $35,308 annually. This rule has been referred to as the “white collar exemption” and defines those employees who fall under this rule as “any employee employed in a bona fide executive, administrative or professional capacity,” according to the Department of Labor. This new regulation is a significant increase from the current threshold of $23,660, which has been in effect since the Bush Administration in 2004. In 2016, the DOL under the Obama administration issued a new rule that would have updated this number to about $47,000, but this was blocked by a federal judge in Texas days before it was set to take effect. The $47,000 threshold would have increased the wages for about four million workers due to overtime eligibility, which was a concern for many business groups who were arguing that the increase was too significant. By offering this revised increase to the $35,308 minimum salary, the DOL looks to meet in the middle.
The new rule will allow about a million workers throughout the U.S. to be eligible for overtime compensation.
So how does this effect you as an employer? Employers should be prepared to raise salaries to meet the minimum thresholds, pay overtime when appropriate and comply to these rules if they do go into effect. Various industries will be subject to these changes. The new regulation is currently open to public comment for review within 60 days to the DOL. After that, the new rule will go into effect after a final version is published, which they are hoping to do before the next election. One it is finalized, employers should be ready to comply with both their state and these new federal regulations.
Currently in California, companies with 26 or more employees must pay an annual salary of at least $49,920 to exempt employees, while California employers with less than 26 employees must pay at least $45,760 in annual salary to exempt employees. Employees must satisfy the duties test as well to be considered exempt.