The DOL’s Final Rule was issued this week (see my previous article for the details), and we have had a few days to digest the new rules. Now employers need to start putting together a plan to ensure compliance with the federal rules, and take time to ensure they are also complying with applicable California law. This Friday’s Five is five suggestions to start the process:
1. Understand that the DOL’s changes apply to the FLSA, not California law.
At risk of sounding like a lawyer, the analysis to determine if an employee is properly classified as an exempt employee is very detailed and complex. California’s requirements differ from the Federal requirements in many ways. Therefore, it is imperative that California employers understand which laws apply to their employees, and that they are following the correct laws. The set of rules that provides the employee with more rights and protections is usually the law that governs. For example, to qualify as an exempt employee under California law, the employee must be paid the equivalent of two times the state minimum wage for full-time employment. As of January 1, 2016, with the state minimum wage at $10 per hour, the annual salary must be at least $41,600 to qualify for the California white collar exemptions. This is less than the annual salary of $47,476 or $913 per week as set by the DOL in the Final Rule. Therefore, in order to avoid paying overtime for work over 40 hours in a week, California employers will need to pay at the higher salary required by federal law by the December 1, 2016 deadline.
2. Understand which law – federal or California – applies to your workforce.
Again, this analysis is complex and needs to be done carefully with competent legal counsel. Generally, the law that gives employees the most protections or benefits must be followed. The FLSA had a much lower salary basis test in the past, so California employers generally had to comply with California law regarding exempt status because it set a higher salary basis (the equivalent of two times the state minimum wage for full-time employment, which equals $41,600 annually, or $3,466.67 per month based on $10 per hour) and a stricter duties test than federal law. Now, California employers will likely need to focus on compliance with the higher salary required under Final Rule, which becomes effective December 1, 2016, but still must also likely comply with California’s stricter duties test. This is territory where advice from an employment lawyer particular to the client’s situation is critical.
3. Take time to evaluate workforce and reclassify employees if needed.
Employers should use the DOL’s Final Rule changes as an opportunity to audit their workforce to determine if employee classifications need to be reclassified prior to the December 1, 2016 implementation date of the Final Rule. While the DOL changed the salary level required to qualify as exempt, employers cannot forget to ensure that exempt employee must also meet the requirements of the duties test, which generally requires employees to perform high level managerial duties for a substantial portion of their worktime. As mentioned above, California applies a different, stricter duties test on employers, and because this provides more protection to the employee, California employers usually have to meet the California duties test.
It would also be an ideal time when the DOL’s regulations take effect to reclassify employees as nonexempt without raising the question of why the reclassification is taking place.
4. Update timekeeping systems and policies.
The increase in the salary basis test will likely result in many employers reclassifying employees as nonexempt. Therefore, with more employees needing to clock-in an out for their start and stop times (in addition to tracking the start and stop times for meal breaks as required under California law), employers need to ensure their timekeeping system is up-to-date and compatible with their workforce.
5. Enforce a strict policy prohibiting off-the-clock work and implement policies designed to limit the amount of overtime worked to keep costs under control.
With many more employees likely being reclassified as nonexempt, it is even more critical that employers ensure they take all appropriate steps to protect themselves from off-the-clock work claims. Employers should have an effective timekeeping policy and train their managers about preventing off-the-clock work. In addition, employers need to develop a policy and train managers on the correct policies to control unauthorized overtime worked. Managing overtime costs requires effective policies and manager training to ensure all wage and hour laws are complied with.