The Obama Administration will be raising the eligibility threshold of salaried workers qualifying for overtime. Currently, salaried workers can make as little as $23,660 per year and still be exempt from overtime pay. This translates to the portion of California law which states properly classified salaried employees can make no less than twice the minimum wage (which in California is currently set at ten dollars per hour). The new rule will raise the threshold to $47,476 per year, and will take effect on December 1st 2016. This means that any salaried employee who makes less than $47,476 per year will be eligible for overtime pay when they work more than 40 hours per week. This number will also adjust every three years to keep up with the rate of inflation. The rate will be determined by calculating the worker’s hourly rate, and multiplying it by the appropriate rate factor (either 1.5 times normal rate of pay or double time). The new threshold was not chosen arbitrarily. Administration states that the number was chosen because it represents the 40th percentile of salaries in the Southeast, which is the lowest-paying region in the United States.
This change is estimated to impact about 4.2 million workers, who did not previously receive overtime pay. It will not affect non-exempt or “hourly” employees (people that were already eligible). However, critics (namely employers) are raising concerns about the new law, questioning whether or not this will actually benefit workers or will a negative outcome. The opposition to the rule are citing such possible outcomes as salaried employees being re-classified as hourly, base wages being lowered in order to compensate for overtime pay, or mass layoffs. Truthfully, there are an equal number of positive outcomes despite these hypotheses.
Employers will have a few options when it comes to making adjustments to wages or work hours:
- They can raise base wages above $47,476 annually if they truly wish to avoid paying overtime, which would make a large difference in the compensation for underpaid salaried employees.
- They can enact protocol changes to make sure their employees do not work more than 40 hours per week, which would in turn give the employee more free time for leisure, family, and health benefits. This would also encourage job creation, as employers will need to fill the excess hours previously worked by the exempt employees.
- They can keep base wages where they are but pay employees overtime when necessary, which most likely would still be a welcomed change in the eyes of the eligible salaried employees.
Logically, employers will not want to make changes that would hurt their employees. Morale comes into question when employees realize they are being treated poorly and are not valued by the company they work for. Employers will not be required to convert their salaried employees to hourly if they do not meet the threshold, and while it may seem more convenient to do so, in reality it wouldn’t be. Realizing that employees will not want to feel “demoted” simply because they are being compensated fairly, it would be a far more efficient (and more likely) move for employers to track the hours being worked. This wouldn’t be difficult change to make, seeing as how a majority of companies already utilize some form of electronic tracking for hours worked or projects being completed. This information can easily be sent via laptops or mobile devices when employees are not in the office or otherwise completing “overtime” work.
A final thought to consider, is just how rampant employment status misclassification is in today’s workforce. People are often misclassified as salaried employees or independent contractors when they should in fact be W-2 or hourly employees. Perhaps, if employers do make the decision to re-classify some of their employees, this change will bring justice to those who have been working long arduous hours without the proper overtime compensation.
If you you are owing overtime pay and have a difficult time getting paid for overtime, please consult with one of our attorneys at Aegis Law Firm, Irvine, CA. For more information contact us HERE
Read our previous blog post on unpaid overtime HERE