As many readers of this column will no doubt recall, in late 2016 there was a lot of buzz in the business community about proposed regulations issued by the U.S. Department of Labor (DOL) that would have significantly increased the earnings thresholds necessary for exempt employees (executive, administrative and professional) to be exempt from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements. Had this occurred, many employees who were previously exempt from the FMSA’s minimum wage and overtime pay requirements would suddenly have been eligible to receive overtime pay for hours worked in excess of 40 hours per week.

Shortly before they were to have taken effect, the proposed regulations were challenged by 21 states and various business groups. A federal court in Texas ultimately issued a nationwide injunction, and after the Trump administration declined to step in, the DOL decided to go back to the drawing board. In September of this year, the DOL rolled out a revised and more reasonable salary-level threshold rule that is scheduled to go into effect on January 1, 2020.

Several of the firm’s clients have asked about this new rule, however given that most of them are located in New York and given that most of their exempt employees are executive and administrative employees, the changes really don’t affect them. That is because, like various other states, New York State has its own salary threshold for determining whether an employee is exempt from receiving overtime, and the state’s threshold is higher for certain categories of employees (executive and administrative).

For other recognized categories of exempt employees, New York follows the federal rules. Complicating matters somewhat, New York’s exemption system varies by region as discussed below.

Employees who (a) are paid a salary that (b) meets or exceeds the salary threshold and (c) who also meet certain tests that qualify them for a recognized exemption need not be paid overtime for hours worked in excess of 40 hours per week.

Payment on a “Salary Basis”

To be classified as exempt, the employee must be compensated on a “salary basis.” This means the employee must receive a predetermined amount each pay period. The amount cannot be reduced because of variations in the quality or quantity of work performed, and the full salary must be paid for any week in which the employee works, regardless of the number of days or hours worked.

Minimum Salary Threshold

In order to be properly classified as an exempt executive or administrative employee in New York State, the employee must earn at a minimum the following:

  • New York City large employer (11 or more employees) $1,125 per week on and after December 31, 2018);
  • New York City small employers (10 or fewer employees) $1,125 per week on and after December 31, 2019;
  • Remainder of downstate (Nassau, Suffolk and Westchester counties) $975 per week on and after December 31, 2019; $1,050 per week on and after December 31, 2020; $1,125 per week on and after December 31, 2021); and
  • Remainder of state (outside of New York City, Nassau, Suffolk and Westchester counties) $885 per week on and after December 31, 2019; $937.50 per week on and after December 31, 2020.

For other states that do not have their own salary threshold, and for other exempt New York positions (there are many including professional employees, outside salespersons, farm laborers, etc.), the federal rules are followed. Assuming they go into effect as planned on January 1, 2020, a worker must earn at least $35,563 per year ($684 per week) or they must be paid overtime. This rule allows employers to count part of an employee’s bonuses and/or commissions towards meeting the salary level. Specifically, non-discretionary bonuses and incentive payments (including commissions) may be used to satisfy up to 10% of the minimum salary.

Duties Test

In addition to receiving the required minimum salary, an exempt employee must also meet the “duties tests” of a recognized exemption. The duties tests for the administrative and executive exemptions recognized by New York are as follows:

Administrative employee exemption:

  • The Employee’s primary duty consists of the performance of office or non-manual field work directly related to management policies or general operations;
  • The Employee customarily and regularly exercises discretion and independent judgment;
  • The Employee regularly and directly assists an employer, or an employee employed in a bona fide executive or administrative capacity or who performs under general supervision, work along specialized or technical lines requiring special training, experience or knowledge; and
  • The Employee is paid for their services on a salary basis.

Executive Employee exemption:

  • The Employee’s primary duty consists of the management of the enterprise;
  • The Employee customarily and regularly directs the work of two or more other employees;
  • The Employee has the authority to hire or fire other employees;
  • The Employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees have particular weight;
  • The Employee customarily and regularly exercises discretionary powers; and
  • The Employee is paid on a salary basis.

Employers should evaluate their workforce to determine which employees will be affected whenever salary thresholds change and determine whether changes to employee pay should be made. For example, it may make more sense to raise the salary of an employee who is currently properly categorized as exempt (i.e. meets all the criteria of an executive, administrative or professional employee), but whose salary will be under the minimum threshold for the position when it increases. Likewise, depending on the numbers it may make sense to convert a given employee from non-exempt to exempt or vice versa. Finally, given the potent penalties that apply in the event an employee has been misclassified (even if the misclassification was unintentional), if there is any doubt whether one or more employees being designated as exempt meet the criteria necessary for proper application of a state or federal overtime exemption, same should be discussed with legal counsel.

Article by Lawrence I. Cohen

Laurence I. Cohen is a partner with Pike, Tuch & Cohen, LLP, a Bellmore, NY-based law firm.

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