Stick a Fork in It —The Federal Overtime Rule is Really Over

Last week, a federal judge in Texas struck down the federal overtime rule, putting an end to this controversial proposal from the prior administration that would have made over four million new workers eligible for overtime pay.

The rule would have set a new federal salary threshold that must be met before an executive, professional or administrative employee can be exempt from overtime. States and business groups challenged the new salary threshold of $47,476 a year ($913 a week), which was more than double the existing federal salary test and also higher than California’s minimum salary test. This rule was set to go into effect in December of last year. However, legal challenges placed the rule on hold.

On August 31, U.S. District Judge Amos Mazzant granted summary judgment against the Department of Labor (DOL) in consolidated cases challenging the federal overtime rule. The court held that the rule’s salary level was too high, exceeded the DOL’s authority and, thus, was invalid. The high minimum salary threshold would basically eliminate the duties portion of the test to determine whether an employee is exempt or nonexempt — some managers who should be exempt would not be because the salary level was set so high.

“The Department has exceeded its authority and gone too far with the Final Rule,” Judge Mazzant wrote in the decision. “The Department creates a Final Rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.” The salary test is one component of the exemption analysis but not the sole component; both duties and wages should be analyzed to determine exempt status.

Although last year’s rule is now dead, the new administration has issued a Request for Information (RFI) to gather public input on the issue of overtime pay and how to define the executive, administrative and professional exemptions. The DOL is still accepting comments on its RFI through September 25, 2017. The RFI and instructions for submitting comments are available here.

What This Means for California Employers

California employers should continue to follow the California salary test to determine whether an employee can be classified as exempt under the executive, administrative and professional exemptions. In addition to the salary test, California employees must meet a strict duties test to be classified as exempt.

The current minimum monthly salary test for most exempt executive, administrative and professional employees is no less than two times the state minimum wage for full-time employment — $41,600 for employers with 25 or fewer employees; $43,680 for employers with more than 25 employees.

In addition to the salary test, California employees must meet a strict duties test to be classified as exempt.

But, take note of AB 1565, which is currently pending before the California legislature and which would accelerate the minimum salary threshold for exempt employees in California.

AB 1565 proposes to accelerate the salary increases by requiring all employers to pay an exempt employee a minimum of $47,472 on January 1, 2018 — with no distinction based on the size of the employer.

Stay tuned for updates on California and federal overtime rules and minimum salary thresholds.

CalChamber members can use the Exempt/Nonexempt Wizard to help determine if a job position should be classified as exempt or nonexempt as well as read the Determining Exempt and Nonexempt Employee Status in the HR Library. Not a member? See how CalChamber can help you.

Staff Contact: Gail Cecchettini Whaley