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New Federal Overtime Rules: Do They Matter in California?

You might recall our post on how California’s new minimum wage plan will be affecting overtime.  Well, now there’s a new set offederal overtime rules that kick in December 1, 2016.  The Obama administration just published the Final Rule that effectively extends overtime eligibility to millions more in the work force.

Here are the two major provisions of the new regulation:

  • Increases the Federal overtime exemption threshold: Salaried employees making less than $47,476 (formerly $23,660) annually are guaranteed overtime pay for any hours worked above 40/week.
  • Increases the threshold for the “highly compensated employee” exemption: Salaried employees making more than $134,004 (formerly $100,000) annually are exempt from overtime provisions (as long as they regularly do administrative, executive, or professional work, and not manual labor)
  • Automatically adjusts every three years: The numbers will be readjusted to match the 40th percentile income level of full-time salaried workers of the US’s poorest region (currently the south).

How Does This Affect Me?

New Federal Overtime Law Chart

If you’re in California… not a whole lot.

As it currently stands, California employees are subject to overtime laws by default.  As we discussed in an earlier post, the employer has to prove that an employee fits a specific exemption in order to not pay overtime.  Probably the most common is for workers who 1) are primarily doing intellectual/creative/managerial work and 2) make at least twice the minimum wage.  For salaried employees, that means they must make more than $41,600/year to be subject to that state exemption.  Factoring in the new minimum wage plan, that number will increase to $43,680 on January 1, 2017 (just 31 days after the federal regulation kicks in), and will surpass the new federal regulation on January 1, 2019 (at $49,920/year).

That means that for those using just this exemption, the only impact is for employees salaried between twice the state minimum wage and $47,476/year, and even that will last for just over two years (see the above chart).

For California employers, the most significant change is for those currently using other state overtime exemptions, like the sheepherder exemption (yeah, it’s on the list).  If your sheepherder is salaried at $25,000/year, then they were exempt from both federal and state overtime provisions in 2015, but will no longer be exempt federally after December 1, 2016.  Pay close attention the the exemptions you’re using so that this doesn’t sneak up on you, and, as always, keep meticulous records of your employees’ hours!


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