NY DOL Hits Employers With New Year's Eve Salary Increases

HIGHLIGHTS:

• The New York State Department of Labor raised the salary threshold for bona fide administrative and executive employees under New York law, which will increase over several years.
• As of Dec. 31, 2016, employers in New York State must meet a higher salary threshold for their exempt administrative and executive employees to comply with new mandated state law increases.
• Employers in New York City of 11 or more employees must pay $825 per week. Employers in New York City of 10 or fewer employees must pay $787.50 per week. Employers in Long Island or Westchester must pay $750 per week. All other employers outside of New York City, Long Island and Westchester must pay $727.50 per week.
• Employers should re-examine the status of exempt employees and make sure that exempt employees meet the rigid duties test needed for an exemption, in addition to meeting the higher salary threshold, which increases annually.

The New York State Department of Labor on Dec. 28, 2016, adopted a rule requiring employers that employ individuals who do not receive overtime pay thanks to their classification as administrative or executive exempt employees to meet a more stringent salary test to properly claim exempt status. This rule is justified by the Department's policy of maintaining the historical relationship between minimum wage and salary threshold amounts, in which the weekly salary threshold is always equal to 75 times the hourly minimum wage rate.

While the initial effect will not impose a greater burden than the new federal $913 per week salary requirement for exempt employees, successive annual increases will exceed the $913 threshold. Further, the continuing viability of the $913 requirement – which has been challenged in the case of State of Nevada v. United States Department of Labor– is uncertain under the incoming Trump Administration. (See Holland & Knight's alert, "Preliminary Injunction Issued Against Department of Labor's Overtime Rule," Nov. 23, 2016.) Regardless of the federal DOL's commitment to its heightened salary rule, New York employers will be facing higher exempt salary levels.

Employers in all of New York State and particularly in New York City should thoroughly examine the exempt status of their employees and determine whether it is prudent to continue that status given the increases in the salary threshold for administrative and executive employees in New York. All of these increases are classified by region, and more importantly, the salary threshold increases in multiple stages over the next five years.

As noted by the table below, New York City's large employers (defined as those employers with 11 or more employees) will be hit the hardest, with an immediate increase from $675 to $825 on Dec. 31, 2016, followed by increases every year up to a salary threshold of $1,125 in the year 2021. While small employers in New York City and employers in Long Island and Westchester will all see smaller increases, the weekly salary for all exempt employees in New York City (regardless of size of employer), Long Island and Westchester will rise to $1,125 by 2021. Employers outside of New York City, Long Island and Westchester face a lesser burden: the salary threshold increases from $727.50 on Dec. 31, 2016, to $937.50 by Dec. 31, 2020.

Contrary to popular belief, these changes take effect on Dec. 31, 2016, not Jan. 1, 2017. Also, unlike under federal law, exempt professional employees are not due any minimum weekly salary.

What Employers Should Do Now

New York State employers should:

• make sure that all employees, exempt and nonexempt are being paid the proper wage (i.e., salary or minimum wage, or overtime rate based on the employer's locality and in New York City, the size of the employer)
• consider whether they can pay or continue to pay the state-mandated increases as the minimum weekly salary rises from the current $675 to the rate of $1,125 in New York City, Long Island and Westchester by Dec. 31, 2021 (New York City employers reach the rate sooner) and to $937.50 for all other New York employers by Dec. 31, 2020
• re-examine the status of exempt employees and make sure that these exempt employees meet the rigid duties test needed for an exemption, in addition to meeting the salary threshold; if the employees in question do not meet either test, then they are not exempt and are likely due overtime pay after 40 hours of work in a workweek
• small employers, in particular, should consider whether paying an exempt employee the higher salary is actually more costly than paying the employee overtime pay, particularly when it is easy to keep track of the employee's hours and the employees rarely work more than 40 hours in a workweek
• monitor the status of State of Nevada v. United States Department of Labor in which a federal district judge in Texas enjoined the federal DOL's final rule increasing the salary threshold for exempt employees from $455 per week to $914 per week; given the imminent transition from the Obama Administration to the Trump Administration, many experts expect the federal DOL to abandon its appeal of the court's ruling blocking the new salary thresholds, but that is still unclear at this time

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.