On September 24, 2019, the U.S. Department of Labor finalized long-awaited changes to the federal overtime rules. The rules increase the salary requirement for the most common overtime exemptions. The higher threshold applies throughout the United States, but it does not trump most state overtime requirements. New York already has higher salary requirements for most of its overtime exemptions. Thus, the federal changes won’t force most New York employers to raise wages.
“White Collar” Exemptions
The Fair Labor Standards Act (FLSA) is a federal law requiring employers to pay minimum wage and overtime. Most employees must receive overtime for working over 40 hours in a week. Some exceptions apply. The most prevalent ones are the “white collar” exemptions.
The “white collar” exemptions include the administrative, executive, professional, and outside sales exemptions. All but the outside sales exemption have minimum salary requirements.
To qualify for the administrative, executive, and professional exemptions, most employees must satisfy both duties and salary requirements. (There is no salary requirement for doctors, lawyers, and teachers under the FLSA professional exemption.)
2020 Federal Overtime Rules
Beginning January 1, 2020, the weekly salary requirement for the FLSA administrative, executive, and professional exemptions will increase from $455 to $684. The new threshold is slightly higher than the $679 level first proposed earlier this year. However, it is much lower than the $913 level that the DOL tried to implement under President Obama in 2016.
Nondiscretionary Bonuses and Incentive Payments
Although the salary requirement has always been measured on a weekly basis, there is now a slight exception. For the first time, the new federal overtime rules will allow employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the salary requirement. Employers can review compliance on an annual basis and make a year-end “catch-up” payment if necessary.
Employers can determine the relevant 52-week period (measured consecutively), but must do so in advance. Otherwise, the calendar year is the default. They must make any necessary catch-up payment within one pay period after the end of the chosen 52-week period.
The total 52-week “salary” requirement is $35,568. Of that, up to $3,556.80 could be satisfied by bonuses or other incentive compensation.
Employers may pro-rate the requirement for employees who do not work the entire 52-week period. If an employee leaves employment the employer would need to ensure compliance and make any catch-up payment within one pay period after the end of employment.
Highly Compensated Employees
The FLSA’s special “highly compensated employee” exemption currently requires that the employee receive at least $100,000 in total compensation in a year.
The new federal overtime rules increase that to $107,432 in total annual compensation. The employee must receive at least $684 in salary on a weekly basis.
Earlier this year, the U.S. DOL proposed increasing this threshold much higher to $147,414. By comparison, the 2016 rule would have required annual compensation of at least $134,004.
The “highly compensated employee” exemption applies where the employee meets the compensation threshold and also performs at least one of the duties of an exempt executive, administrative, or professional employee. Most employees who qualify for this exemption would also be eligible for the full executive, administrative, or professional exemption anyway. So there may be relatively few situations where employers really need to increase compensation to maintain this special exemption.
New York’s Overtime Exemptions
The minimum wage varies throughout New York State based on geographic location, among other factors.
For most occupations, the current New York minimum hourly wage ranges from $11.10 for Upstate workers to $15.00 for some employees in New York City.
New York has overtime pay rules that are similar to those found in the FLSA. These include similar exemptions, such as the administrative, executive, and professional exemptions.
New York’s administrative and executive exemptions already require that employees receive a salary higher than $684 per year. However, unlike the FLSA, New York’s professional exemption does not have a salary requirement. That means that some exempt professionals might need a raise to stay exempt in 2020.
A Caveat for Public Employers in New York
Most New York employers are subject to both the federal FLSA and the similar New York State laws.
However, the New York minimum wage and overtime rules don’t apply to governmental entities in the State, with limited exceptions. But the FLSA does.
So, public employers in New York will need to review the federal overtime rules to evaluate the potential impact on their workforces. Most public employees in New York eligible for exemptions already make more than $684 per year. But some, including part-time exempt employees, do not. (The FLSA salary requirement does not decrease for part-time employees.) Preserving exemptions for part-time employees may or may not be important, depending on whether they ever work over 40 hours in a week, which would trigger FLSA overtime obligations.
Act Soon, If Necessary
If you have employees in states where the new federal salary requirement exceeds the applicable state exemption threshold, then you need to be prepared to make changes by January 1, 2020. You will either need to increase compensation or remove the exemption and pay overtime where earned.
In New York, the new federal overtime rules only affect some public employers and professional employees. Most private-sector employers, including non-profits, will just need to focus on maintaining exemptions under New York law.
The full notice of the new FLSA regulations is available here:
