Tag: professional exemption

March 22, 2019

Will Proposed FLSA Rules Affect New York?

On March 22, 2019, the U.S. Department of Labor formally published proposed FLSA rules that would increase the salary level for key exemptions from federal minimum wage and overtime requirements. We discussed the DOL’s proposal in an earlier post when they were first publicized. The rules would require employers to pay employees at least $679 weekly ($35,308 per year) to preserve the exemptions. However, New York law already sets a higher salary threshold for similar exemptions. But that does not mean the federal proposal won’t have an impact in the Empire State.

In case you don’t want to read further to see whether these nuances affect your organization, here’s the quick summary:

The proposed FLSA rules are more likely to affect governmental employers in New York than those in the private sector.
Exempt “professionals” (other than doctors, lawyers, and teachers) would now have a higher salary requirement under the FLSA than under New York State law.

New York Has Its Own Rules

New York is among the states with the highest minimum wages in the U.S. The minimum wage now varies throughout New York State based on geographic location, among other factors.

Click here for complete charts on the various New York minimum wage rates and overtime exemption salary levels.

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.

In addition to the State minimum wage, New York also 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 that the proposed FLSA rules would alter.

New York’s administrative and executive exemptions also require that employees receive a sufficient salary. In 2019, the weekly salary thresholds for these exemptions range from $832 to $1,125. Thus, New York’s requirements already exceed the $679/week level in the newly proposed FLSA rules.

But the State Rules Don’t Apply to All New York Employees

First, let’s be clear, most New York employers are subject to both the federal FLSA and the similar New York State laws. That is, employers must satisfy both. Neither trumps the other.

However, not every workplace comes under the coverage of both federal and state minimum wage and overtime laws. And the primary distinction is perhaps counterintuitive.

Generally speaking, the FLSA applies to all but the smallest employers across the United States, including New York. This includes both the private sector and the government.

By contrast, the New York minimum wage and overtime rules don’t apply to governmental entities in the State, with limited exceptions. In other words, New York villages, towns, counties, school districts, and public authorities, as well as the State itself, don’t have to follow the New York laws with respect to most employees. But they do have to comply with the FLSA. (One narrow exception, for example, is non-instructional employees of public school districts, who are subject to the State requirements as well as the FLSA.)

New York Public Employers Must Heed the Proposed FLSA Rules

New York State and its municipalities and other public entities could currently have exempt employees making less than the $35,308 per year the proposed FLSA rules would require. The current FLSA requirement is just $455 per week, or $23,660 annually.

So, public employers in New York will need to review the proposed FLSA rules to evaluate the potential impact on their workforces. Although most full-time public employees in New York probably already make at least $679 per week, some part-time exempt employees at least do not. And the FLSA salary requirement is not pro-rated 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.

The DOL’s current proposals also affect a special “highly-compensated employee” exemption. Right now, that exemption requires that the employee receive at least $100,000 in total compensation in a year. The proposed FLSA rules increase that almost to $147,414. Many New York public employers have exempt employees falling within that range. This does not mean that all of them must receive a raise, however. Many would probably also qualify for other exemptions with the lower $35,308 salary requirement.

Moreover, unlike the private sector, even supervisory employees working for public employers in New York can unionize. This increases the likelihood that exempt employees might be subject to collective bargaining agreements. If so, then changes to the terms and conditions of their employment, including compensation, might need to be negotiated with their union. Governmental entities in this situation should allow additional time to do what is necessary to come into compliance with the proposed FLSA rules by the time the DOL finalizes them–likely later this year.

The Peculiar Case of the Professional Exemptions

The proposed FLSA rules pertain to three of the so-called “white collar” exceptions to federal overtime laws: the administrative, executive, and professional exemptions. (Click the corresponding link in the previous sentence for more on these exemptions and their New York State counterparts.)

Under the FLSA, all three of these exemptions have salary components. Not so under New York law.

New York’s administrative and executive exemptions do have salary requirements. Its professional exemption does not.

Thus, New York employers only have to satisfy the FLSA salary level to exempt qualifying professional employees. This group includes both “learned” professionals like accountants and engineers and artistic professionals like painters and musicians. So, the proposed FLSA rules might require employers to pay some of these individuals more to preserve the professional exemption.

As one final caveat, the FLSA has a further special exception for doctors, lawyers, and teachers. The salary requirement does not apply to these professionals, assuming they’re working in their licensed fields. The proposed FLSA rules don’t make any changes applicable to those employees.

Proposed Rules Are Not Final Yet

Keep in mind that we’re still only talking about proposed changes to the FLSA overtime exemption rules. The public has until May 21, 2019, to submit comments on the proposals. Then the DOL will have to review them and prepare “final” rules. Though there is a reasonable chance the final rules will closely mirror the current proposals, something might change. And the impact on New York workplaces could differ from that described here.

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March 14, 2019

2019 Overtime Rule Proposes $35,000 Salary Level

On March 7, 2019, the U.S. Department of Labor released new proposed rules regarding FLSA overtime exemptions. The 2019 overtime rule differs substantially from the one pursued by the Obama administration in 2016. The $35,000 threshold falls almost exactly between the current federal requirement ($23,660) and the 2016 proposal ($47,476). The DOL has not proposed changes to the duties test for the “white collar’ exemptions, but did modify other aspects of the existing regulations.

FLSA “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 fall into the category of “white collar” exemptions.

The administrative, executive, professional, and outside sales exemptions all fall under the “white collar” rules. Of these, the first three have salary requirements. The outside sales exemption does not.

To qualify for 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.)

Many states have separate overtime exemption requirements. Employers generally must satisfy both state and federal exemptions. In some states, the salary requirement already exceeds the new proposal. The overall impact of the FLSA 2019 overtime rule may be less in such states.

Salary Levels

In 2004, the Department of Labor set the salary threshold for the white collar exemptions at $455 per week. This equates to $23,660 annually.

Near the end of President Obama’s second term, the Department of Labor proposed and finalized an increase to the salary requirement. The 2016 rate was $913 per week, or $47,476 per year. Shortly before the increase took effect, a federal court blocked it. That court case is technically still pending on appeal.

Now the Trump DOL is pursuing this new rule to replace the blocked rule and the one that preceded it. The March 2019 proposal sets the weekly requirement at $679, or $35,308 annually. This represents almost exactly the midpoint between the 2004 (current) and 2016 (blocked) salary levels.

The March release by the DOL does not establish a $679 per week salary requirement. There will be a 60-day comment period first. Then the DOL would be able to issue a final rule. The final rule could adopt this proposal or modify it in either direction.

[Along with a salary level test comes a salary basis requirement. For more on that component of the white collar exemptions, click here.]

No Automatic Adjustment in the 2019 Overtime Rule

The 2016 rule not only doubled the salary threshold, but also established a mechanism for automatic adjustments every three years. That approach would have almost certainly increased the salary requirement at large intervals.

Instead of automatic increases, the 2019 overtime rule proposal suggests that the DOL review the salary threshold every four years. The agency could then change the requirement through new notice and comment rulemaking.

Highly Compensated Employees

Surprisingly, there is one aspect of the 2019 overtime rule proposal that is more burdensome on employers than the 2016 regulations.

The FLSA also has a “highly compensated employee” exemption. Right now, it requires that the employee receive at least $100,000 in total compensation in a year. The current proposal increases that almost by half to $147,414. By comparison, the 2016 rule would have only required compensation of at least $134,004 annually.

However, the precise amount of this change might not be a significant concern for most employers. The highly compensated employee exemption is primarily a shortcut to the traditional white collar exemptions. It 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, whether at the $100,000, $134,004, or $147,414 level, would also be eligible for the full executive, administrative, or professional exemption anyway.

What Does This Mean for Employers?

For now, this is only a proposal. We are at least two months away from the DOL moving to finalize these changes. And most likely the DOL will set the new salary threshold and give employers some lead time to prepare for the increase. Ideally, the DOL might have the new rules apply beginning January 1, 2020, when many employers make annual wage adjustments anyway.

Still, it’s not too early to start planning for the increase. $35,308 might not be the exact new threshold. But it will probably be in that ballpark. If your company has exempt employees making less than that, you might have to pay them more to maintain the exemption. The alternative would be to eliminate their exemption and pay overtime as required. There are many strategies and approaches to implementing these changes. We’ll try to address some of them once the final rule comes out. So, stay tuned!

The best way to keep in touch is to sign up for our email newsletter. It’s free and will also let you know how to sign up for our complimentary webinars. You can be sure there will be one of those covering this topic before a new rule takes effect!

March 7, 2019

Salary Basis for FLSA Overtime Exemptions

Several common FLSA overtime exemptions require that employees be paid on a salary basis. A salary usually refers to a fixed amount of compensation that an employee receives regularly. But, for FLSA purposes, paying employees on a salary basis is more complicated than just that.

Minimum Wage & Overtime Exemptions

The FLSA is a federal law that covers most employers in the United States. It generally requires them to pay employees a minimum wage and overtime for working over 40 hours in a week. The law allows various exemptions from these standard requirements. The most widely applicable are often referred to as “white collar exemptions”. (They primarily apply to employees who perform little manual labor.) These include the executive, administrative, professional, and outside sales exemptions.

Employers do not have to pay overtime to employees who qualify for these exemptions. (They are also technically exempt from minimum wage, though their compensation typically exceeds that level anyway.)

The executive, administrative, and professional exemptions require that the employee is paid on a salary or fee basis of at least $455 per week. There is no salary requirement for the outside sales exemption.

Many states have similar minimum wage and overtime laws and exemptions. Some of these have higher salary requirements for exemption. Employers usually must satisfy both state and federal overtime requirements.

Salary Basis Requirement

“Salary Basis” compensation means the employee receives a predetermined amount of pay each pay period on a weekly or less frequent basis. That part is relatively straightforward.

The complexity lies in the further detail that the predetermined amount cannot be reduced based on the quality or quantity of the employee’s work. Improper salary reductions can destroy an exemption. That can open up the employer to substantial liability for unpaid overtime.

Permissible Deductions

Generally, an exempt employee must receive their full salary for any week in which they work at all. Conversely, if an exempt employee does not work at all in a week, then no payment is required under the FLSA.

There are also a few limited situations where missing time during a week can warrant a lawful pay reduction without jeopardizing the salary basis requirement:

1. First and Last Weeks of Employment

An exempt employee who starts their job after the first day/hour of a workweek can receive a pro-rated salary payment for that week.

The same applies to an employee who ends employment before the last day/hour of a workweek.

2. Absence for Personal Reasons Other than Sickness or Disability

If an exempt employee voluntarily takes one or more full days off for personal reasons, then their employer could dock their pay for the day(s) without undermining their FLSA exemption. No pay reduction is permissible, however, for partial day personal leave.

3. Absence for Sickness or Disability

Employers may also reduce an exempt employee’s pay for full-day absences due to sickness or disability. But, the pay reduction must be consistent with a bona fide plan, policy, or practice of providing compensation for salary lost due to illness.

If the employer does not have a sick leave policy, then making pay deductions for sickness or disability, even in full-day increments, will interfere with the salary basis component of applicable FLSA exemptions.

However, when an exempt employee is eligible for paid sick leave but exhausts available leave time, then their employer may reduce their salary for full-day absences due to additional sick days.

Employers may likewise pay only a pro-rated salary in weeks where an employee receives workers’ compensation or disability insurance benefits for days they are not working.

4. Unpaid FMLA Leave

When employees are eligible to take time off under the Family and Medical Leave Act (FMLA), the law only guarantees unpaid leave. Accordingly, employers may reduce salaried exempt employees’ pay for time off under the FMLA.

FMLA leave can sometimes be taken for only part of a workday. In those cases, employers could make pay deductions in less than full-day increments.

5. Offsetting Jury or Witness Fees or Military Pay

Employees who are off of work to serve on a jury, testify as a witness, or serve in the military might receive alternative compensation to do so. In these cases, the employer does not have to maintain the full salary over the periods of these absences, even if only for part of a day.

6. Penalties for Infractions of Safety Rules of Major Significance

Employers may reduce salaried employees’ pay for certain safety violations. According to FLSA regulations:

“Safety rules of major significance include those relating to the prevention of serious danger in the workplace or to other employees, such as rules prohibiting smoking in explosive plants, oil refineries and coal mines.”

7. Disciplinary Suspensions for Workplace Conduct Rule Infractions

If an employer suspends an exempt employee for violating a written policy that applies to all employees, then they may deduct pay for full days that the employee does not work. This allows the employer to implement an unpaid suspension.

Consequences of Improper Salary Deductions

An employer that makes impermissible deductions from an exempt employee’s salary may lose the exemption not only for that employee, but perhaps for all employees in the same job classification.

However, isolated or inadvertent deductions will not destroy the exemptions as long as the employer reimburses the employees for all improper deductions.

There is a “safe harbor” protection available to employers that:

(1) have a clearly communicated policy prohibiting improper deductions and including a complaint mechanism;

(2) reimburse employees for any improper deductions; and

(3) make a good faith commitment to comply in the future,

An employer that satisfies the safe harbor parameters will not lose exemptions improper deductions unless it willfully continues to make improper deductions after receiving employee complaints.

Review Your Pay Practices

Employers who are uncertain about their full compliance with these rules should promptly review their exempt employee pay practices. The penalties for losing exemptions can be costly if employees subsequently seek overtime compensation.

Keep in mind that state wage and hour laws might have different exemptions or construe them differently. Employers covered by both state and federal overtime laws must comply with both. Many states apply similar salary basis concepts, but some situations might necessitate alternative or additional analysis.