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Will executive order on overtime impact California businesses?

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President Obama’s efforts to increase the federal minimum wage continue to be stymied by members of Congress. However, he has signed several executive orders to try to narrow the income inequality gap in this country — a disparity the administration says is greater than ever. Last week, the president signed an executive order mandating the U.S. Department of Labor to expand eligibility for overtime pay.

The president noted that federal overtime regulations were initially designed “for highly paid, white-collar employees.” However, as administration officials have pointed out, that has changed significantly over the years. The current weekly income cap for mandatory overtime pay is $455. Thus, under federal law, employees making about $24,000 a year don’t have to be paid time and a half when they exceed a 40-hour work week. That’s close to 88 percent of salaried employees.

If that cap seems rather low, that’s because it has not been adjusted for inflation over the years, according to the White House. The $250 weekly cap in 1975 is more than twice the current cap in today’s dollars. The Los Angeles Times noted that California has a threshold of $640 a week. This is set to increase to $800 over the next two years.

The executive order does not provide a specific new threshold. The labor secretary has been tasked with developing a plan to increase the number of overtime-eligible employees. There will be a public comment period for interested groups to respond to the plan.

Business lobbyists are already expressing their displeasure. They say that expanding the base of employees entitled to overtime will stifle economic growth and increase employee lay-offs. A spokesman for the National Federation of Independent Business called the plan “another antibusiness policy,” which he tied in with administration efforts to increase the federal minimum wage and reform health insurance coverage.

It will take some time before the executive order takes effect, and the new regulations have not been precisely determined. Even if the California threshold remains above the federal one, there could be other new regulations. It is essential for all California businesses to work closely with their legal teams to ensure that they are following all current local, state and federal regulations. Issues like misclassification of pay, failure to pay overtime or to pay minimum wage by even one person or franchisee in a business can result in costly litigation and penalties.

Source: The New York Times, “Obama Orders Rule Changes to Expand Overtime Pay” David S. Joachim, Mar. 13, 2014

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