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.”

In our June 28, 2018 post on District of Columbia voters approving Initiative 77, which would incrementally increase the minimum cash wage for tipped workers to $15.00 per hour by July 1, 2025, and effectively eliminate the tip credit staring July 1, 2026, we noted the possibility of action by the D.C. Council to amend or overturn it. Consistent with the opposition to the initiative previously expressed by a majority of the Council, on July 9, 2018, a seven-member majority of the Council introduced a bill (Tipped Wage Workers Fairness Amendment Act of 2018) to repeal Initiative 77. As the Council is now on a two-month summer recess, no further formal action will occur until the fall. Furthermore, considerable publicly expressed opposition to repealing a voter-approved initiative may lead to a compromise that extends the phase-in period or otherwise modifies the terms of the initiative, rather than a complete repeal. Meanwhile, two federal Congressmen have sponsored a budget rider barring spending funds to implement the initiative, although such efforts often fail. In short, it appears the future effectiveness of the initiative will remain in doubt for some time.

Featured on Employment Law This Week: A Texas federal court ruled that the U.S. Department of Labor (DOL) does not have the authority to implement new salary thresholds for overtime.

The district judge issued a nationwide preliminary injunction on the DOL’s new rules and the department appealed. The DOL has now asked for an expedited briefing on its appeal to be completed by February 7, followed by oral arguments as soon as possible. But the Trump administration will be in place by then, and that could change the DOL’s position.

Watch the segment below and read our recent post.

Overtime Clock Faces - Abstract PhotoWe have written more than a few times here about the new Fair Labor Standards Act (“FLSA”) overtime rules that were scheduled to go into effect on December 1, 2016, dramatically increasing the salary threshold for white collar exemptions.

Most recently, we wrote about the November 22, 2016 nationwide injunction entered by a federal judge in Texas, enjoining the Department of Labor (“DOL”) from enforcing those new rules on the grounds that the DOL had overstepped its bounds.

The injunction threw the new rules into a state of limbo, as employers and employees alike were left to wonder whether the DOL would appeal that decision to the Fifth Circuit Court of Appeals.

Under normal circumstances, one would assume that the DOL would appeal that ruling.  However, normal circumstances do not exist.  With a new President set to be sworn in shortly, and with a new Secretary of Labor presumably to be appointed thereafter, there was much speculation about what the DOL would do.

The question has now been answered – at least for the short term.

On December 1, 2016 – perhaps not coincidentally, the same day the rules were to go into effect – the Department of Justice (“DOJ”) filed an appeal on behalf of the DOL. 

The DOL has issued a brief statement about its position, which may be found here: https://www.dol.gov/whd/overtime/final2016/litigation.htm

In short, it is the DOL’s position that the salary basis test has been part of the FLSA overtime rules since 1940, and that the new rules were the result of a comprehensive rule-making process that complied with the law.

While the notice of appeal has been filed, it remains difficult to predict whether or how long the appeal will in fact proceed.  Unless the President-elect should indicate otherwise, it is certainly possible that the new Secretary of Labor will pull the plug on the appeal shortly after he or she assumes the role.

We will continue to monitor the case and share any significant developments. In the meantime, it would appear safe to say that employers should feel comfortable that they need not comply with the new rules, and that those who already implemented or announced changes prior to the injunction should seek guidance on how best to proceed if they intend to rescind those changes.

Stop SignWe have written often in the past several months about the new FLSA overtime rules that were scheduled to go into effect in little more than a week, dramatically increasing the salary thresholds for “white collar” exemptions and also providing for automatic increases for those thresholds.

In our most recent piece about the important decisions employers had to make by the effective date of December 1, 2016, careful readers noticed a couple of peculiar words — “barring … a last-minute injunction.”

On November 22, 2016, a federal judge in the Eastern District of Texas entered just such an injunction, enjoining the Department of Labor from implementing the new rules on a nationwide basis.

“The court determines that the state plaintiffs have satisfied all prerequisites for a preliminary injunction,” wrote United States District Court Judge Amos Mazzant III. “The state plaintiffs have established a prima facie case that the Department’s salary level under the final rule and the automatic updating mechanism are without statutory authority.”

The state plaintiffs had argued that the Department of Labor usurped Congress’ authority in establishing new salary thresholds. Finding that the Department had overstepped its bounds, Judge Mazzant wrote, “If Congress intended the salary requirement to supplant the duties test, then Congress and not the department, should make that change.”

The injunction could leave employers in a state of limbo for weeks, months and perhaps longer as injunctions often do not resolve cases and, instead, lead to lengthy appeals. Here, though, the injunction could spell the quick death to the new rules should the Department choose not to appeal the decision in light of the impending Donald Trump presidency. We will continue to monitor this matter as it develops.

To the extent that employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction will at the very least allow employers to postpone those changes. And, depending on the final resolution of this issue, it is possible they may never need to implement them.

The last-minute injunction puts some employers in a difficult position, though — those that already implemented changes in anticipation of the new rules or that informed employees that they will receive salary increases or will be converted to non-exempt status effective December 1, 2016.

Whether employers can reverse salary increases they have already implemented is an issue that should be addressed carefully with legal guidance.

As for those employers that informed employees of changes that would go into effect on December 1, 2016, they, too, should seek legal guidance as to how to communicate with employees that those announced changes will not go into effect at that time.

While the FLSA rules are now enjoined, employers must now be mindful not only of morale issues that might result from not providing employees with raises that were implemented or announced, but also of potential breach of contract claims.

The Administrator of the Wage Hour Division of U.S. Department of Labor has issued an Administrator’s Interpretation of the FLSA’s definition of “employ.” And the conclusion is one that not only could have a significant impact on the way companies do business, but lead to numerous class and collective actions alleging that workers have been misclassified as independent contractors.

Addressing the misclassification of employees as independent contractors, the Administrator’s Interpretation notes that the FLSA’s defines the term “employ” as “to suffer or permit to work.” Based on that definition, the DOL concludes that “most workers are employees.”

The Interpretation cites to the six-factor “economic realities” test the DOL applies as indicia of employment, but emphasizes certain aspects of that test.  Notably, the Administrator states that the goal of the “economic realities” test is to determine whether a worker is “economically dependent” on the alleged employer, or is really in business for himself or herself.

1.  Is the Work an Integral Part of the Employer’s Business?

The Administrator’s Interpretation emphasizes that a workers’ duties are likely to be an “integral part” of an employer’s business if they relate to the employer’s core products or services.

For example, the Interpretation cited to the Seventh Circuit’s decision in Secretary of Labor v. Lauritzen, a self-described “federal pickle case” in which the issue was “whether the migrant workers who harvest the pickle crop of defendant … are employees … or are instead independent contractors….”

Summarizing the point, the Administrator’s Interpretation quoted the Seventh Circuit’s statement in that case stating that it “does not take much of a record to demonstrate that picking the pickles is a necessary and integral part of the pickle business. . . .”

2.  Does the Worker’s Managerial Skill Affect the Worker’s Opportunity for Profit or Loss?

The Administrator’s Interpretation emphasizes that the opportunity for profit or loss reflects independent contractor status only when it is dependent on managerial skill.

By contrast, the Administrator opines that the fact that a worker that can increase his or her earnings by working longer hours is not evidence that the worker is an independent contractor

3.  How Does the Worker’s Relative Investment Compare to the Employer’s Investment?

Previously, the DOL had stated that the relative investment of a worker “compared favorably” if the investment was substantial and could be used for the purpose of sustaining a business beyond the particular job or project the worker was performing.

While these factors are mentioned in the new guidance, the Administrator’s Interpretation appears to place greater emphasis on a comparison of the investments of the worker and the potential employer.  The Administrator opines that even if a worker has made an investment, that investment has to be significant when compared to the investment of the purported employer.

4.  Does the Work Performed Require Special Skill and Initiative?

The Administrator’s Interpretation asserts that it is a worker’s business skills as an independent business person, not his or her technical skills, that support independent contractor status.

The Administrator states that only skilled workers who operate as independent businesses, as opposed to being economically dependent on a potential employer, are independent contractors.

5.  Is the Relationship between the Worker and the Employer Permanent or Indefinite?

The DOL’s prior Fact Sheet on independent contractor status stated that the absence of a permanent relationship may not suggest independent contractor status when arising from “industry-specific factors” or the fact that the potential employer “routinely uses staffing agencies.”

The Administrator’s Interpretation adds to this opinion by opining that the finite nature of an independent contractor relationship should be the result of the worker’s “own business initiative.”

Thus, an employer who imposes limits on the duration of its independent contractor relationships should consider whether that policy will continue to have the desired results.

6.  What is the Nature and Degree of the Employer’s Control?

The Administrator’s interpretation emphasizes that an independent contractor must control “meaningful aspects” of the work demonstrating that the worker is conducting his or her own business.  However, the Interpretation does not specifically explain what aspects of a job are “meaningful.”

The Administrator does make clear that flexible work arrangements are common forms of employment.  Therefore, the Interpretation concludes the fact that an individual works from home or controls the hours of work is not particularly indicative of independent contractor status.

While the Administrator’s Interpretation does not have the force of law (or regulation), it will be applied by the DOL and may be given deference by courts.  Accordingly, employers should evaluate the extent to which they are relying on criteria addressed by the Administrator (such as flexible work arrangements and relationships of finite duration) as justification for classifying workers as independent contractors.