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Category: Wage & Hour

FLSA Exemption Threshold

DOL Proposes Increased FLSA Exemption Threshold

On August 30, 2023, the Wage and Hour Division of the U.S. Department of Labor announced its intention to propose significant increases in the compensation required for several common minimum wage and overtime exemptions. If adopted following public review and comment, the FLSA exemption threshold for the administrative, executive, and professional exemptions would increase by more than 50% over the current salary requirement. The proposal also seeks an automatic adjustment every three years. In addition, the pay required to qualify for the FLSA’s “highly compensated employee” exemption would also increase substantially.

FLSA Minimum Wage and Overtime Requirements

The Fair Labor Standards Act applies to most employers across the United States. It generally requires that employees receive a minimum wage of at least $7.25 per hour and then receive overtime at time-and-a-half the employee’s regular rate for hours worked beyond 40 in a week. However, there are various exceptions and exemptions from those requirements.

Note that many states and some localities have additional minimum wage and overtime requirements. Employers are often subject to and must comply with both the FLSA and the applicable state/local standards.

“White-Collar” Exemptions

The FLSA permits a series of so-called “white-collar” exemptions that employers commonly rely on in structuring compensation for certain, typically non-manual, workers. The most generally applicable of these are known as the administrative, executive, and professional exemptions.

Under the FLSA, each of these exemptions has a salary basis requirement. To qualify for the exemption, an employee must be paid a salary that usually doesn’t vary based on how much the employee works in a given week.

Currently, the minimum salary for these exemptions is $684 per week ($35,568 annualized).

Proposed FLSA Exemption Threshold

The U.S. DOL has the authority to issue regulations interpreting the FLSA, including its exemptions. The salary requirement has historically been implemented through such administrative rulemaking.

The DOL has now proposed to base the salary requirement on the 35th percentile of weekly earnings of full-time salaried workers in this lowest-wage U.S. Census Region. The South is traditionally and currently the lowest-wage region.

Based on this method, the new FLSA exemption threshold would be $1,059 per week ($55,068 annualized). However, the DOL’s proposal indicates in a footnote that the actual threshold upon adoption of a final rule could be higher. Since some time will pass before the rule is finalized, the 35th percentile earnings in the South may increase. The DOL notes that given its current projection for future quarterly earnings data, the new weekly salary threshold could be up to approximately $100 higher than $1,059 upon adoption.

The proposal would also impose automatic updates to the salary requirement. The DOL would change the amount every three years to maintain the 35th percentile standard.

Highly Compensated Employee Threshold

The administrative, executive, and professional exemptions are not based solely on compensation. Employees’ duties must also meet particular standards. However, the FLSA recognizes an alternative potential exemption for some employees who do not fully meet the duty requirements of the other white-collar exemptions.

Currently, the “highly compensated employee” exemption could apply to an employee who makes a salary of at least $684 per week and overall qualifying annual compensation of at least $107,432.

As proposed, the new DOL rule would tie the overall annual compensation requirement to the 85th percentile of full-time salaried workers nationally. Based on current earnings statistics, that would initially be $143,988. Like the standard exemption salary threshold, this bar would also be subject to automatic updates every three years.

Rulemaking Process

Once the DOL’s proposal is formally published in the federal register, the public will be afforded at least 60 days to submit comments. After the comment period ends, the DOL can move forward with a final rule change. The new rule could be exactly what is currently proposed or include some revisions.

Given the necessary rulemaking timeline, it is unlikely the FLSA exemption threshold would change before 2024.

Potential Litigation

The last time the DOL tried to include automatic indexing of the FLSA exemption threshold, it was challenged in the courts and ultimately never took effect. Similar lawsuits will presumably be filed in response to the DOL’s current attempt to increase the salary requirement. The outcome of those cases cannot be as reliably predicted.

Impact of Proposals

The practical impact of the potential increases will vary depending on an employer’s circumstances. Some states already have higher exemption thresholds than what the DOL seeks here. Some companies already pay most exempt employees beyond this level. Nonetheless, many would need to either re-classify employees as non-exempt or increase their salaries, potentially significantly.

Even where the initial jump to $1,059 (or more) per week is not particularly problematic, the prospect of automatic indexing could be more so. This approach would almost certainly result in meaningful increases every three years. Notwithstanding other economic factors, some employers would raise salaries to meet the new higher thresholds, putting upward pressure on average weekly wages nationwide (and perhaps especially in the South, where fewer states currently impose thresholds beyond the FLSA level). As a result, it almost necessarily will become more expensive over time to maintain these exemptions.

 

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Volunteer Restrictions

Volunteer Restrictions for New York Non-Profits

As an employer, can your organization also have people providing services for no compensation? The short answer is yes, but only if certain circumstances apply. And the rules for interns and volunteers depend on what type of organization you are. This article addresses the volunteer restrictions that apply to non-profit entities in New York. We will separately address related concerns (i.e., unpaid interns) in for-profit businesses.

Non-Profit Volunteers

Generally speaking, anyone who agrees to perform services without getting paid can be referred to as a volunteer. Legally, there are more specific criteria that may apply, and some further distinctions to be made.

New York not-for-profit organizations often have both paid employees and unpaid volunteers who collectively perform an array of roles to pursue the organization’s mission and objectives. For the most part, this is acceptable. But there are legal lines that need to be drawn.

Note that we are talking about duly established non-profit entities that operate for charitable, educational, or religious purposes. Other types of entities usually may not use unpaid volunteers.

Volunteer Restrictions

Under state and federal minimum wage and overtime laws, volunteers could be deemed employees (and entitled to compensation) if certain conditions aren’t satisfied.

In particular, as described by the New York Department of Labor, unpaid volunteers may not:

  • Replace or augment paid staff to do the work of paid staff
  • Do anything but tasks traditionally reserved for volunteers
  • Be required to work certain hours
  • Be required to perform duties involuntarily
  • Be under any contract to hire, express or implied, by any other person or business
  • Be paid for their services (except reimbursement for expenses)

Employees Who Volunteer

As a partial limitation on the above criteria, it is possible for employees of a non-profit also to volunteer some of their time for the organization. However, they cannot agree to forego compensation for their regular job. Instead, they can only volunteer (without pay) to do something completely different from what they do as employees. For example, if an organization employs an events coordinator, they presumably couldn’t allow that employee to oversee a fundraising event on a volunteer basis. But a non-profit organization’s receptionist, accountant, or delivery driver may be free to volunteer to run such an event without pay.

Review Your Volunteer Arrangements

Missteps in managing volunteer roles can lead to legal complications under state and federal minimum wage and overtime laws. Therefore, non-profits must establish clear volunteer policies and guidelines to maintain a beneficial and legal relationship between the organization and its dedicated volunteers.

 

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Future New York Minimum Wage

Future New York Minimum Wage Increases Planned

Changes to New York’s minimum wage rates have been a hot topic during a contentious 2024 state budgeting process. With a budget deal now in place in Albany, Governor Kathy Hochul has announced future New York minimum wages beginning in 2024. The increases are not as high as some were proposing, which could have made New York’s minimum wage the highest of any state in the country.

Regional Distinctions

After some discussion of moving back to a uniform minimum wage across the entire state, future New York minimum wage rates will continue to vary geographically. In 2023, the minimum wage for New York City, Long Island (Nassau and Suffolk Counties), and Westchester County is $15 per hour. For the rest of the state, it is $14.20. (Note: Certain fast food employers are subject to a statewide $15 minimum wage.)

On January 1, 2024, the New York City-area jurisdictions will increase to a $16 minimum wage, and the rest of the state will move to $15.

These rates will increase again by $0.50 in both 2025 and 2026. Thus, the 2024-2026 New York minimum wage rates will be:

202420252026
NYC, Long Island, Westchester$16.00$16.50$17.00
Rest of NYS$15.00$15.50$16.00

2027 and Beyond

After 2026, future New York minimum wage increases will occur based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the Northeast Region. In other words, the minimum wage will be indexed to inflation. It appears that the NYC, Long Island, and Westchester minimum wage would always remain higher than the rest of the state since they’re all tied to the same index.

The New York State Department of Labor is expected to publish the new minimum wage for the subsequent year annually by October 1st.

Despite the indexing, the minimum wage rates would not change if:

  • The CPI-W is negative;
  • The statewide unemployment rate increases by 0.5% or more during applicable periods; or
  • Total non-farm employment decreases (measured seasonally).

Overtime Exemption Thresholds

Higher minimum wage rates will also produce higher salary requirements to maintain the administrative and executive exceptions to New York’s overtime requirements. The increases in the salary thresholds should correspond to the same percentage increases in the applicable minimum wage. Accordingly, the anticipated salary thresholds through 2026 are shown below.

202420252026
NYC, Long Island, Westchester$1,200.00$1,237.50$1,275.00
Rest of NYS$1,124.20$1,161.70$1,199.15

Other Affected Rates

Other wage rates contained in New York’s minimum wage orders would also increase with the higher future New York minimum wage. For example, the tip allowance for restaurant and hotel employees would be expected to increase (as would the amount that service employees must receive in direct wages from their employers).

Plan Ahead

Although some employers will struggle with the higher minimum wage rates, the 2024 budget resolution at least provides some certainty on this issue for the foreseeable future. Plus, the increases are well below the $21.00+ per hour minimums that some legislators sought. Although these rates could be changed by future legislative action, employers can now better project their labor costs through 2026, including where wage rates must be negotiated and potentially set for years in advance in unionized workplaces.