New overtime rules to take effect

The U.S. Department of Labor released new Fair Labor Standards Act (FLSA) rules that require employers to pay overtime to exempt employees who earn salaries less than $47,476 per year, beginning Dec. 1, 2016.

What does this mean for California practice owners? Currently, a full-time employee classified as an exempt, salaried employee must be paid a minimum salary of two times the current minimum wage of $800 per week, or $41,600 per year, and must perform exempt work (performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer's customers) at least 51 percent of the time.

In most cases, employees should be considered nonexempt, hourly wage employees unless they clearly meet the "duties test" of the executive, administrative or professional.

Effective Dec. 1, the new federal salary requirements are higher and will require exempt employees to be paid a minimum salary of $913 per week or $47,476 per year. To complicate things further, California employers will need to pay close attention to and adjust salaries over the next several years as the minimum wage increases and the Department of Labor's estimated automatic increases affect the minimum salary threshold. As of now, the new federal salary basis of $47,476 is higher than California's salary basis (currently, $41,400; $43,680 as of January 2017).

In 2019, California employers with 26 or more employees will need to meet the $49,920 per year salary threshold – this will likely be higher than the federal amount. These numbers will change over the years ahead, with minimums adjusted for inflation, so it's important to monitor and keep track of the current salary thresholds.

California practice owners will need to review the duties test to determine that employees clearly meet the job duties of an exempt position and either increase employee salaries to be compliant with these new regulations or reclassify employees as nonexempt, hourly employees.

Newly classified nonexempt employees must understand that they are now required to record their working hours (including any "off the clock" work), and take appropriate meal and rest breaks within standard guidelines.

In addition, employers will be required to pay these employees at a rate of not less than one-and-a-half times their hourly rate for any hours worked in excess of eight hours a day or 40 hours in a workweek.

For more information on these new rules, contact CDA Practice Support at 800.232.7645 or visit dir.ca.gov.

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