1.3 Million Additional Workers To Receive Overtime Pay And California Upends The Gig Economy

Significant changes announced over the past two weeks will entitle approximately 1.3 million US workers to overtime pay and severely restrict the use of independent contractors in the state of California. These changes require immediate action by employers and are likely to leave a lasting impact on the US employment landscape.

The US Department of Labor Increases Salary Level Threshold Required to Meet Overtime Exemption

Effective January 1, 2020, the salary level threshold required to exempt executive, administrative, or professional employees from federal minimum wage and overtime pay requirements will increase from $455 to $684 per week ($35,568 annually). Non-discretionary bonuses or other incentive compensation can be used to satisfy up to 10% of this salary threshold. The US Department of Labor (USDOL) predicts that the increase will “make 1.3 million workers newly eligible for overtime pay”.

The USDOL's final rule also increases the salary level for “highly compensated employees” from $100,000 to $107,432 per year and sets special salary levels for employees working in the motion picture industry and US territories (e.g. Puerto Rico and Guam).

Employers should evaluate their current exempt classifications in advance of the effective date, taking into account state or local laws with higher thresholds and/or differing laws on compensation items that can be considered in meeting the threshold.

New California Law Presumptively Considers All Workers to be Employees Under the “ABC Test”

California employers should evaluate their current independent contractor relationships in light of Assembly Bill 5. The bill codifies the “ABC Test”. The ABC Test significantly restricts who may be classified as an independent contractor by creating a presumption that a worker performing services for hire is an employee unless the hiring entity can establish the worker:

(A) is free from the control and...