All About the Money

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All About the Money

11/15/16

I suspect if we took a poll and asked what factor should be used to determine which employees are entitled to earn overtime wages, most would agree on salary. I suspect if we asked how high a salary should be to exempt an employee from overtime wages, most would say at least $50,000.

This year, the Department of Labor (“DOL”) doubled the annual salary threshold for overtime pay under federal law, from $23,660 to $47,476. The DOL estimates the rule will extend overtime coverage to more than 4 million employees across the country. I suspect most would agree those 4 million employees earning an annual income of less than $47,476 deserve to earn overtime when they work more than 40 hours in a week (and, in California, more than 8 hours in a day).

The problem is not the salary threshold; it’s the myriad of other factors that must be met to qualify for one of the three “White Collar Exemptions.” The factors are difficult to decipher, and, more importantly, they result in arbitrary and inequitable decisions regarding exemption status. For instance, depending on how jobs are structured, recruiters, customer success managers, salespeople and engineers may be exempt, or they may not. In California, our exemption laws go a step further and require employers quantify how much time employees spend engaged in their various job duties to determine whether they qualify for overtime. A ridiculous endeavor given the unlikelihood of accuracy.

It’s reasonable to require employers pay overtime to lower-income workers; those who don’t earn enough shouldn’t have to work long hours without additional compensation. Yet, the converse is also true; those who earn enough should be exempt from overtime.

Federal law has a Highly Compensated Employee (HCE) exemption applicable to employees earning six figure salaries (under the new DOL rule, the threshold will increase from $100,000 to $134,000 per year). In California, where thousands of Silicon Valley workers earn six figures but don’t quite fit within the confines of the antiquated exemptions, an HCE exemption would result in more straightforward and equitable pay practices and eliminate time-consuming and expensive litigation. I suspect most would agree that’s a win-win.

For more information, please contact one of the attorneys from our Labor and Employment Law team.

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