On May 18, 2016, the U.S. Department of Labor issued a new regulation that an estimated four (4) million Americans will now be eligible for overtime pay for hours worked in excess of forty (40) hours per week. In 2014, President Barack Obama signed a Presidential Memorandum directing the Department of Labor to update its regulations pertaining to the exemption of administrative and professional employees from the minimum wage and overtime pay protections under the Fair Labor Standards Act. This new overtime regulation is in response to President Obama’s 2014 directive.

Prior to this regulation, employees earning more than $23,660 per year were not eligible to receive overtime pay for hours worked in excess of forty hours per week. However, under the new rules, employees who earn less than $47,476 per year will qualify for overtime pay of time-and-a-half for every hour worked over forty hours per week. This rule will even apply to employees who have managerial duties, as long as he or she earns less than $47,476 per year.

Federal employment law provides two ways for employees to be eligible for overtime pay for hours worked in excess of forty hours per week. First, employees who are not executives, administrators, or professionals, which historically means employees who do not spend their time exercising decision-making authority, may earn overtime pay for any hours worked in excess of forty hours per week.

Alternatively, as of May 18, 2016, an employee is eligible for overtime pay for any hours worked in excess of forty hours per week if he or she makes less than $47,476 per year, regardless of the employee’s duties.

The new regulation also allows the Department of Labor to adjust the maximum pay for overtime pay every three (3) years.

With these new rules, many employers will be forced to limit eligible employees’ hours to forty (40) hours per week, in order to avoid paying overtime. Other employers may decide to increase their employees’ base salary above the $47,476 threshold so that they will not be required to pay overtime for hours worked in excess of forty hours per week.

Employers will have until December 1, 2016 to comply with this new rule. Churchwell White LLP will continue to follow and keep you updated on any relevant developments pertaining to the new overtime pay law as they become available.

As always, if you have any questions on this issue, please contact Douglas L. White at (916) 468-0947 doug@whitebrennerllp.com, or Helane S. Seikaly at (916) 458-4963 helane@whitebrennerllp.com.