Breaking News: Federal Overtime Rule Blocked
For the past several months, California employers have faced tough decisions regarding their exempt salaried employees and how to comply with the revised minimum salary test for exempt classification under the Fair Labor Standards Act (FLSA). This change was expected to become effective on December 1, 2016, but yesterday a federal court in Texas issued a nationwide injunction on the implementation of the new rule.
In October, a group of states filed a lawsuit claiming that the Department of Labor exceeded its authority in enforcing a change to the federal salary test for exempt classification. The Texas court agreed, and issued a preliminary order to stop the rule while litigation continues. The court also stated that the merits of the case showed “a likelihood of success.”
This means that the federal salary test for an employee to be classified under the Executive, Administrative, or Professional exemptions will remain at $455 per week instead of rising to $913. (An employee still must meet the duties test for these classifications.) California employers are required to comply with state law, which requires weekly compensation of at least two times the minimum wage to meet the salary test. The current minimum wage is $10 per hour, making the minimum salary for exempt employees $41,600 annually. On January 1, 2017, the minimum wage for employers of 26 or more employees rises to $10.50, resulting in an annual salary threshold of $43,680 for employers of 26 or more. For smaller businesses the annual salary threshold remains at $41,600 for the next year.
We know that many employers have already made significant changes to their compensation structures in an effort to maintain compliance with the federal rule. If you have questions about how to respond to this development, please contact us. Our certified Consultants will gladly assist you in understanding your options.