Effective December 31, 2018, New York State’s salary basis threshold for exempt executive and administrative employees[1] will increase again, as a part of amendments to the minimum wage orders put in place in 2016.[2] Employers must increase the salaries of employees classified as exempt under the executive and administrative exemptions by the end of the year to maintain these exemptions.

The increases to New York’s salary basis threshold for the executive and administrative exemptions will take effect as follows:

Employers in New York City 

  • Large employers (11 or more employees)
    • $1,125.00 per week ($58,500 annually) on and after 12/31/18
  • Small employers (10 or fewer employees)
    • $1,012.50 per week ($52,650 annually) on and after 12/31/18
    • $1,125.00 per week ($58,500 annually) on and after 12/31/19

Employers in Nassau, Suffolk, and Westchester Counties

  • $900.00 per week ($46,800 annually) on and after 12/31/18
  • $975.00 per week ($50,700 annually) on and after 12/31/19
  • $1,050.00 per week ($54,600 annually) on and after 12/31/20
  • $1,125.00 per week ($58,500 annually) on and after 12/31/21

Employers Outside of New York City and Nassau, Suffolk, and Westchester Counties

  • $832.00 per week ($43,264  annually) on and after 12/31/18
  • $885.00 per week ($46,020 annually) on and after 12/31/19
  • $937.50 per week ($48,750 annually) on and after 12/31/20

What New York Employers Should Do Now

  • Review executive and administrative exempt positions in New York State with salaries below the stated thresholds to determine whether (a) the employee’s salary should be increased or (b) the employee’s position should be reclassified as non-exempt.
    • For executive and administrative employees remaining exempt, increase their salaries to the new threshold based on their primary work location as of the December 31, 2018, effective date.
    • For employees reclassified to non-exempt, ensure that all of their work time is accurately recorded as of December 31, 2018.
  • Consider establishing procedures to track and update the weekly salaries for employees who work in different locations within New York State.
  • Conduct a regular review of primary duties tests for the executive, administrative, and professional exemptions because meeting the salary threshold alone does not confer exempt status upon employees.

Download a PDF of this Advisory.

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[1] New York law does not contain a salary threshold for employees who meet the duties requirements of the professional exemption.

[2] See Epstein Becker Green’s prior Act Now Advisory titled “New York State Department of Labor Implements New Salary Basis Thresholds for Exempt Employees.”

By Brian Steinbach

True to its word, the Obama administration is continuing its effort to do administratively what it cannot achieve legislatively.

While efforts to increase the minimum wage to $10.10 per hour are mired in the Congress, the administration on March 13 announced that it has instructed the Secretary of Labor to “update” and “simplify” the regulations defining who is considered an exempt employee not entitled to overtime pay. These regulations were most recently overhauled in 2004.

 
“Regulations regarding exemptions … for executive, administrative, and professional employees (often referred to as "white collar" exemptions) have not kept up with our modern economy.”  - Barack Obama
Regulations “for executive, administrative, and professional employees (often referred to as ‘white collar’ exemptions) have not kept up with our modern economy.”                Barack Obama

The announcement makes it clear that the goal is to significantly narrow the number of individuals who qualify as exempt. A major target of the proposed revisions is the current $455-per-week salary threshold for executive, administrative and professional employees. That threshold is roughly equivalent to $11.38 per hour for a forty-hour week – not much more than the $10.10 minimum wage that the administration seeks, and which it claims is the equivalent of $561 in today’s dollars.

While many exempt employees already make far more than this amount, in some industries – particularly retail and restaurants – front-line managers who currently qualify as executive or administrative employees may not earn much more than this amount, so even a relatively modest increase could cause them to no longer be exempt.

Another likely target may be changing the portion of the definition of an executive employee that currently requires only that the “primary duty” be managing, to a requirement that a fixed percentage of work be devoted to managerial tasks. Again, this is particularly likely to affect the retail and restaurant industry, where managers frequently step in and handle nonexempt tasks when needed.

Fortunately, the regulatory process likely will last at least 18 months, if not longer, and there will be ample opportunity to comment on whatever specific proposed changes the Department of Labor makes, as well as for the Congress to weigh in. In the meantime, this is a good opportunity for employers to review their classifications to make sure exempt individuals are properly classified, and in particular look at how much time they are spending on exempt activities.

By Andrew J. Sommer

There has been a lack of clarity in California wage and hour law on how compensation must be structured to meet the “salary basis test,” particularly where an exempt employee is paid based on hours worked. However, in Negri v. Koning & Associates, the California Court of Appeal addressed this very issue and concluded that a compensation scheme based solely upon the number of hours worked, with no guaranteed minimum, is not considered a “salary” for the purpose of state overtime laws. 

Under California law, an employee exempt from overtime laws must regularly receive “a monthly salary of no less than two (2) times the state minimum wage for full time employment” that cannot be reduced except in enumerated exceptions. Most of the litigation over the so-called salary basis test has addressed when deductions may be made from the exempt employee’s compensation without undermining the exemption. 

In Koning & Associates, the plaintiff/employee was paid an hourly wage for 40 hours per week so that, in effect, he received an unvarying minimum amount of pay. Nevertheless, the Court found that, based on the employer’s admission that it never paid the employee a “guaranteed salary,” the employee did not meet the administrative exemption. 

Although the Court acknowledged based on precedent that the employer may calculate a salary based upon hours worked, it emphasized that this must be a “predetermined amount” that is not subject to reduction because of variations in the quality or quantity of work performed. 

The Court recognized that an employee may otherwise be compensated beyond the predetermined amount for extra work without losing the exemption. The key fact that the Court relied upon in concluding that the salary basis test was not met was the employer’s concession that it never paid a “guaranteed salary.”   

This case highlights the importance of California employers properly characterizing compensation paid to exempt employees to reflect that it is a predetermined amount, no matter how the “salary” is ultimately calculated.   

By Daniel R. Levy

On November 16, 2011, the New Jersey Appellate Division held that registered nurses are exempt from overtime compensation under the New Jersey Wage and Hour Law (“NJWHL”), N.J.S.A. 34:11-56a1 to 56a30, even if paid on an hourly basis, because they fall within the “professional” exemption. Anderson v. Phoenix Health Care, Inc., A-2607-10T2 (N.J. App. Div. Nov. 16, 2011). The Court further held that, even if registered nurses were not exempt, a claim for overtime compensation may nevertheless fail under the NJWHL’s good faith exception, N.J.S.A. 34:11-56a25.2, if the employer establishes that it conformed to the Division of Wage and Hour Compliance’s (“Division”) “longstanding interpretation that registered nurses are not entitled to overtime so long as they are compensated in excess of the weekly minimum” salary required for exemption.

The NJWHL requires that employees pay one-and-one-half times an employee’s hourly wage for each hour worked in excess of forty hours per week. Excepted from this general rule are individuals employed in a bona fide executive, administrative, professional or outside sales capacity. N.J.A.C. 12:56-7.1. Under N.J.A.C. 12:56-7.3(a), which was in effect until mid- 2011, a professional was defined as an employee whose primary duties consisted of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as distinguished from a general academic education, and who is compensated not less than $400.00 per week. The regulation, however, has since been superseded by regulations adopted on August 15, 2011 that adopted the federal regulations under the federal Fair Labor Standards Act (“FLSA”). N.J.A.C. 12:56-7.2(a); 43 N.J.R. 2353.

In Anderson, plaintiffs, registered nurses formerly employed by Phoenix Health Care, Inc., filed a putative class action seeking relief for overtime compensation under the NJWHL. Plaintiffs moved for class certification and defendants cross-moved for summary judgment, arguing that registered nurses are exempt from the NJWHL’s overtime requirements and asserting that plaintiffs’ claims were otherwise barred by the NJWHL’s good faith defense. The trial judge granted defendants’ cross-motion, and plaintiffs appealed.

On appeal, the Court affirmed dismissal of plaintiffs’ NJWHL claim despite plaintiffs’ argument that they were not exempt because they were paid on an hourly, not salaried, basis. The Court reasoned that although the applicable regulation did not expressly exempt professionals paid on an hourly basis, such as a majority of registered nurses, “the NJWHL was not intended to permit overtime to such employees when they are compensated at least as much as the weekly minimum referred to in N.J.A.C. 12:56-7.3(a)(5).” The Court also held that summary judgment was appropriate based upon the NJWHL’s good faith exception because defendants conformed to the Division’s “longstanding interpretation that registered nurses are not entitled to overtime so long as they are compensated in excess of the weekly minimum.”

In a footnote, the Court recognized that N.J.A.C. 12:56-7.3 was superseded by regulations adopting the federal regulations under the FLSA. Those federal regulations state, in pertinent part, that “[r]egistered nurses who are registered by the appropriate State examining board generally meet the duties requirements for the learned professional exemption but licensed practical nurses generally do not qualify as exempt learned professionals.” 29 C.F.R. 541.301(e)(2). The Court stated that it was not opining as to whether the result would be the same under the newly adopted regulations. 

Employers should proceed with caution as a result of the Court’s decision in Anderson, specifically because it construed regulations that have been superseded.  If New Jersey courts continue to follow this ruling under the newly promulgated regulations, it may lead to inconsistent results under the NJWHL and FLSA. It is clear that registered nurses paid on a salary basis will likely qualify under the professional exemption under both the NJWHL and the FLSA. 

It remains unclear, however, whether registered nurses paid on an hourly basis will be found exempt under the NJWHL. In order for a registered nurse to be exempt under the FLSA, the registered nurse must be paid on a salary basis. See 29 C.F.R. 541.600(e) (stating that the salary requirement applies to nurses); Anani v. CVS Rx Servs., 788 F.Supp.2d 55 (E.D.N.Y. 2011) (registered nurses perform exempt duties and question of whether they are, in fact, exempt turns on whether they are paid on a salary basis). If New Jersey courts follow the FLSA regulations, as the newly promulgated New Jersey regulations state they will, registered nurses paid on an hourly basis will not be found exempt under the NJWHL. If, however, the decision in Anderson is followed under the new regulations, then registered nurses paid on an hourly basis will likely be found to be exempt under the NJWHL.