The New Federal Overtime Rule and What California Employers and Employees Need to Know
The U.S. Department of Labor’s (DOL) new federal overtime rule, effective July 1, 2024, represents a significant change in wage and hour law, impacting both employers and employees nationwide, although California workplaces will be less impacted than in most of the rest of the country. This rule is designed to extend overtime protections to millions of lower-paid salaried workers, restoring the promise of fair compensation for hours worked beyond 40 in a week. Read on to learn more about this change and what it might mean to you. If you are a Bay Area employer or employee concerned about an overtime issue in your workplace, contact Richard Koss to speak with a skilled and knowledgeable San Franciso employment law attorney.
Key Changes in the New Overtime Rule
The new rule raises the salary threshold for overtime eligibility, ensuring that more salaried workers qualify for overtime pay. As of July 1, 2024, most salaried employees earning less than $844 per week ($43,888 annually) will be entitled to overtime pay. This threshold will increase again on January 1, 2025, to $1,128 per week ($58,656 annually). Additionally, starting July 1, 2027, the DOL will adjust these thresholds every three years based on current wage data, providing employers with predictability and ensuring that the salary limits keep pace with inflation.
The rule also impacts highly compensated employees (HCEs). On July 1, 2024, the annual compensation requirement for HCEs will rise to $132,964, with a further increase to $151,164 on January 1, 2025. These adjustments reflect the DOL’s commitment to ensuring that workers are fairly compensated, even those in higher income brackets. Highly compensated employees can be exempt from overtime even if they don’t otherwise fit into one of the “white-collar exemptions” for professional, executive and administrative employees.
Impact in California
While many states adhere to the federal rules when it comes to overtime, California has long bested the federal government when it comes to protecting employees. The “salary basis” test in California is two times the applicable minimum wage, currently $66,560 annually, so even without any increases at the state level, it would still take many years for the federal salary threshold to catch up to California’s, and it’s likely that Golden State legislators will move to stay ahead of the pack before that ever happens. And the “salary basis” test for computer software engineers is currently a whopping $115,763.35 per year. The biggest impact this new rule is likely to have in California is that it could confuse some employees and employers over the appropriate salary basis to apply, leading to incorrect and inconsistent application of overtime laws.
California has other laws that are more generous to employees than federal rules. One of the most important is that most hourly workers receive overtime compensation for working over 40 hours in a workweek or 8 hours in a workday, which is more beneficial to the employee.
Implications for Bay Area Employers
For employers in the San Francisco Bay Area, it might still be crucial to assess the potential impact of this rule on your workforce. Now is a good time to review current payroll practices, particularly the classification of employees as exempt or non-exempt from overtime. Misclassification can lead to significant legal and financial consequences, including back pay, fines, and penalties.
Employers should also consider how these changes may affect their budgets and staffing decisions. With more employees qualifying for overtime, companies may need to adjust workloads, revise job duties, or increase salaries to meet the new thresholds. Proactively addressing these issues can help mitigate the risk of compliance violations and ensure smooth transitions as the new rule takes effect.
What This Means for Employees
For employees, the new overtime rule is a win for wage fairness. It guarantees that more salaried workers, particularly those in lower-income brackets, are compensated for their overtime work. This change is especially significant in a high-cost region like the Bay Area, where fair compensation is crucial to maintaining a reasonable standard of living.
Employees should be aware of their rights under California law as it compares to the new federal rule to ensure that they receive the correct overtime pay or are being properly exempted. If you believe you are not being compensated appropriately, it may be beneficial to consult with an employment attorney who can help you understand the complexities of state and federal wage and hour laws.
Navigating the Transition
The DOL’s new overtime rule underscores the importance of staying informed and proactive about employment law changes. Whether you are an employer needing to update your compliance practices or an employee seeking to understand your rights, this rule has far-reaching implications.
Employers should consider conducting a thorough audit of their workforce classifications and pay practices. Employees, on the other hand, should stay informed about the changes and communicate with their HR departments to ensure compliance.
Help With Overtime, Exemptions, and Other Wage and Hour Laws in San Francisco
The new federal overtime rule is a critical update to labor law that will affect millions of workers across the country. Employers must take proactive steps to ensure compliance, while employees should be vigilant in understanding their rights under this new regulation. For both parties, consulting with an experienced employment law attorney, like Richard Koss, can provide the guidance needed to navigate this significant transition effectively and address any problems that arise. For help with overtime or other wage and hour issues in the Bay Area, call 650-722-7046 on the San Francisco Peninsula or 925-757-1700 in the East Bay.
