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Legislature Considers AB 1565 to Raise the Bar on Overtime Salary Test

The California Senate Appropriations Committee is considering AB 1565, a new bill that would require employers to meet a higher salary threshold for employees it seeks to categorize as exempt from overtime requirements. Current law requires employers to pay employees overtime for all hours worked beyond eight in a day or 40 in a work week, and provide those employees with meal and rest breaks, unless they qualify for one of the narrow exemptions set forth in the Industrial Welfare Commission Wage Orders.

Under the Wage Orders, employees are exempt only if they meet both a duties test and a salary test. The proposed legislation would raise the minimum salary required to maintain the exemption. Under its terms, employees will meet the salary test if they earn at least $3,956 per month ($47,472 per year) or twice the state minimum wage, whichever is greater. While many employers pay their exempt employees more than that, those outside of major urban labor markets, those in lower paying industries, and those with a higher proportion of part-time employees may face the choice between raising exempt employees’ pay or reclassifying them as hourly. And, of course, all employers with exempt employees will still have to grapple with the complexities of the duties test.

Gina Roccanova, Chair of Meyers Nave’s Labor and Employment Practice Group, provides a legal analysis of the bill and practical insights on its implementation in an article published in Law 360. Gina’s article also explains AB 1565 in the context of the federal Fair Labor Standards Act and a proposed federal salary test minimum that was enjoined by a federal district court judge in Texas in November 2016. Please click here to read Gina’s article.