New federal overtime pay regulations and state minimum wage and paid family leave rules
by Dawn Davidson Drantch, Esq., corporate counsel at Alcott HR
Published July 5, 2016
New York employers take note. There have been some significant changes in workplace regulations on both the federal and state level which could significantly impact your bottom line.
“The New Overtime Rule”
The U.S. Department of Labor (DOL) recently finalized its new federal overtime pay regulations. Its “Final Rule on Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees under the Fair Labor Standards Act” (i.e., the “Overtime Rule”) will make an estimated 4.2 million U.S. employees newly eligible for overtime when they work over 40 hours a week (certain states have different rules, but this article deals only with the federal rules). This is because, starting in December 2016, the salary threshold at which point an employee that satisfies one of the exemption duties tests becomes exempt from overtime is now $913 per week or an annual salary of $47,476; more than double the prior threshold of $455 per week or $23,660 annually. This figure is based on the 40th percentile of income for salaried full-time employees in the lowest wage region of the United States, now the South. The DOL will increase the salary every three years to reflect inflation using its “40th percentile” factor beginning in 2020. The Overtime Rule also increases the compensation level for highly compensated employees to $134,004 annually, up from $100,000, subject to a more minimal duties test.
Under the Overtime Rule, salaried white collar employees paid below the new specified salary level would be entitled to overtime pay, while those with salaries at or higher than this salary level could be exempt from overtime pay if they also meet the certain duties requirements. Very generally, the employee’s primary job duty must involve work associated with exempt executive, administrative or professional employees. Additionally, in order for a white collar exemption to be claimed, the employee must also be paid on a salary basis not subject to reduction based on quality or quantity of work, rather than on an hourly basis and meet the minimum salary level (i.e., at least $913/week or $47,476/annually.
Many argue that an increase in the salary threshold, which had been inflation-adjusted only once before in the past four decades, was long overdue. For employers, however, now faced with several difficult choices relating to their employees’ status, salaries and schedules, the change will represent a challenge and require careful planning. Some employers may be forced to slow hiring and change certain employees’ classifications from salaried to hourly, reduce workers’ hours and have them log their hours as required by law for non-exempt workers, thus causing a blow to employee morale as most workers equate receiving a salary with having a higher status than having to clock in hours as an hourly worker.
“Increase in NYS Minimum Wage and New 12-Week Paid Family Leave Policy”
Along with the federal overtime rule, employers in New York State will have to adhere to new legislation passed as part of the State 2016-17 Budget. Included are a statewide $15 minimum wage plan and a 12-week paid family leave policy. The increase in New York’s minimum wage is expected to affect at least 2.3 million people. It will be indexed by county based on a region’s cost of living. There are additional rules for tipped employees which will not be discussed here.
In Nassau, Suffolk and Westchester Counties, the minimum wage will increase to $10/hour on December 31, 2016. Thereafter, it will increase by another $1 each year until it reaches $15/hour on December 31, 2021.
In New York City, employers with at least 11 employees will be required to pay their workers $11/hour effective 12/31/16, $13/hour effective 12/31/17, and $15/hour effective 12/31/18. For New York employers with 10 or fewer employees, the minimum wage will rise to $10.50/hour effective 12/31/16 and then increase by an additional $1.50/hour until the minimum wage reaches $15/hour in 2019.
For employers in New York’s other counties, the minimum wage will increase to $9.70 on 12/31/16 and then increase by another $.70 per year until the wage reaches $12.50 on 12/31/20. Thereafter, it will continue to increase to the $15/hour minimum wage on an indexed schedule to be determined by the Director of the Division of Budget in concert with the New York State Department of Labor.
New York’s new paid family leave policy is the most comprehensive in the entire nation. It will be introduced on a phased-in basis for all full-time and part-time employees who meet the criteria of having worked for their employer for at least six months. Beginning on January 1, 2018, these employees will be eligible for up to eight weeks paid leave in a 52-week period; increased to ten week on January 1, 2019, and finally to a twelve week paid family leave on January 1, 2021. Employees will be granted paid leaves to care for a child within the first year of life, adoption or placement for foster care, a family member with a serious illness or to relieve family pressures resulting from a family member’s call to active military service. The phasing in of this benefit will begin in 2018 at 50% of an employee’s average weekly wage, capped to 50% of the statewide average wage, and increase gradually until fully implemented in 2021 at 67% of an employee’s average weekly wage, capped to 67% of the statewide average weekly wage.
Dawn Davidson Drantch, Esq., is corporate counsel at Alcott HR, Farmingdale, N.Y.