NYS DOL New Rules for Minimum Wage Increases, Exempt Employee Threshold Take Effect 12/31/16

Effective December 31, 2016, employees in New York City who work for large employers and are classified as exempt from overtime under the executive and administrative exemptions must be paid at least $825 per week ($42,900 per year) or they will lose their exemption and will be entitled to overtime pay. Additionally, all persons employed in New York City by large employers must be paid a minimum wage of at least $11.00 per hour, regardless of whether or not they are exempt from overtime pay. The overtime exempt salary threshold and new minimum wage will also increase in varying amounts for employees of small New York City employers, employers in Long Island and Westchester, and employers in the remainder of New York State.

Introduction

On December 28, 2016, the New York Department of Labor adopted its October 19, 2016 proposed rules concerning scheduled increases to the State's minimum wage and salary threshold for the executive and administrative employee exemption.

The minimum wage will increase to $11.00 per hour for persons employed in New York City who work for "large employers" (employing eleven (11) or more people), with smaller increases for "small employers" in New York City, employers in Long Island and Westchester, and employers in the remainder of New York State.

Similarly, the exempt employee salary threshold will increase to $825 per week for New York City employers with eleven (11) or more employees, with smaller increases for small employers in New York City, employers in Long Island and Westchester, and employers in the remainder of New York State. The increases are scheduled to take effect on December 31, 2016, with a schedule of further increases to be implemented through 2021 as part of the final rules.

Employers with operations in New York should review the wages and schedules of current employees and consult legal counsel to ensure compliance with the new regulations. For your convenience, an overview of the scheduled increases can be found below. Please contact us for a more substantive analysis of how these increases may affect your company's policies.

Salary Threshold for Executive and Administrative Exemptions

For New York employees to be classified as exempt from overtime under New York's executive or administrative exemption,¹ employees must meet three basic tests: (i) the employee must be paid on a salary basis (i.e. the employee's rate of pay cannot be calculated based on hours worked); (ii) the employee must be paid a minimum weekly salary (salary threshold); and (iii) the employee must perform the duties of an exempt administrative or executive employee. The New York State salary threshold for exempt administrative and executive employees prior to adoption of the new rule was $675 per week ($35,100) per year, which is higher than the $455 per week ($23,660) required by the Federal Labor Standards Act (FLSA).²

Effective on December 31, 2016, New York City employees employed by an employer with a minimum of eleven (11) employees must be paid a salary of at least $825 per week ($42,900 per year) to qualify as an executive or administrative employee exempt from overtime. The salary threshold for New York City employers with ten (10) employees or fewer will increase to $787.50 per week ($40,950 per year), while the salary thresholds in Long Island and Westchester, and for the rest of New York State, will increase to $750 per week ($39,000 per year) and $727.50 per week ($37,830 per year), respectively. New York employers may not use "bonus" income or any other form of "make up" payments to meet the test under New York law.

The new rule also includes a schedule of salary threshold increases through 2021, which are as follows:

The increases apply to the employees covered by the Miscellaneous Industries, Hospitality Industry and Building Service Industry Wage Orders.

Employers in New York should be particularly mindful of these thresholds in contrast to proposed changes to these thresholds under the FLSA. Although the proposed increase to the salary threshold under the FLSA did not take effect on December 1, 2016 as scheduled, executive or administrative employees in New York must nevertheless meet thresholds set forth under New York law in order to be classified as exempt from overtime.⁴ Employers should also consider reviewing employees' exempt classification status and strategies for reclassification in light of the new rules.

Minimum Wage

On April 4, 2016 New York Governor Andrew Cuomo signed the $15 Minimum Wage Plan, which sets forth a schedule to increase the minimum wage in New York City, Long Island and Westchester to $15 per hour by the year 2021, and to $12.50 per hour in the remainder of New York State by that same year. Under the new law, New York's current minimum wage of $9.00 per hour will increase incrementally each year on a schedule through 2021, and after 2021 will increase as determined by the Director of the Division of Budget and based on economic indices including the Consumer Price Index. The new Minimum Wage Orders reflecting these scheduled increases were adopted by the New York State Department of Labor on December 28, 2016.

The new general minimum wage rate for New York employers with eleven (11) or more employees will be $11.00 per hour beginning on December 31, 2016. The minimum wage for New York employers with ten (10) or fewer employees will increase to $10.50 per hour. The minimum wage for employers in Long Island and Westchester, and the remainder of New York State, will increase to $10.00 per hour and $9.70 per hour, respectively.

The schedule for the subsequent general minimum wage rate increases are as follows:

*The minimum wage in 2021 for New York State and beyond will be based on percentage increases based on economic indices, including the Consumer Price Index, as determined by the Director of the Department of Budget.

The general minimum wage rate is applicable to all of the Wage Orders. Effective December 31, 2016, the tipped minimum wage will also increase under the Hospitality Industry Wage Order.

Employers should review their current employees' wages and consult with legal counsel to ensure compliance. Employers should also review the new minimum wage orders for additional information on updates to available minimum wage allowances under the applicable industry Wage Order. Employers must also continue to keep accurate records of employees' wages and hours and make sure to update the Minimum Wage Information posters posted in their establishments by December 31, 2016. Copies of the posters are available here.

The new published Minimum Wage Orders (which include the exempt employee thresholds) can also be found on the New York State Department of Labor website:

• Hospitality Industry (including fast food workers)
• Building Service Industry
• Miscellaneous Industries and Occupations
• Farm Workers

The New York State Department of Labor provides additional guidance on its website.