CHA News Article

Department of Labor Announces Overtime Rule

The U.S. Department of Labor (DOL) has issued the long-awaited regulation updating the Fair Labor Standards Act’s (FLSA’s) exempt status rules. The regulation, which goes into effect Dec. 1, sets the new federal salary threshold at $47,476 per year and allows employers to use up to 10 percent of bonus or commission payments toward the threshold. The new level will be automatically updated every three years. While the final regulation does not change the duties test to qualify as exempt, other changes include raising the “highly compensated” exemption threshold.

While the final regulation did not go as far as the proposed regulation, which would have set the salary threshold at $50,400 with annual updates, it does have implications for California employers. Public entities such as the University of California and district and county hospitals are governed by the FLSA. These employers should review the new regulation carefully.

While private hospitals and health systems in California have traditionally focused on determining exempt status under California law, which is more protective of employees, the new regulation changes that analysis. Currently, the minimum salary to qualify as exempt under California law is $41,600 and will increase to $43,680 on Jan. 1, 2017. As of Dec. 1, 2016, an employee who qualifies as exempt under California law will not qualify as exempt under federal law if his/her salary is between $41,600 and $47,476. Neither federal nor state law allows an employer to pro-rate the salary amount for part-time exempt employees; state law does not allow the employer to use any portion of bonus or commission payments toward the salary threshold. Therefore, it appears that in order to satisfy both the federal and state exemption tests as of Dec. 1, an employee must perform exempt duties more than 50 percent of the time (per California law) and be paid a salary of at least $47,476 (per federal law).

There is substantial concern as to how this new regulation will impact employment, particularly for small and nonprofit employers. As a result, several strategies are underway, including introduction of the Protecting Workplace Advancement and Opportunity Act (S. 2707, H.R. 4773), which would require the DOL to perform a detailed impact analysis prior to implementing the final rule. In addition, Senate Health, Employment, Labor and Pensions Committee Chair Lamar Alexander (R-Tenn.) has indicated that he will introduce a resolution to block the rule under the Congressional Review Act. CHA will provide updates through CHA News.