Proposed amendments to the New York State Wage Orders significantly increase the salary levels needed for employers to qualify for the executive and administrative exceptions under the New York Labor Law.

Last month, a US district court in Texas enjoined the US Department of Labor’s proposed revisions to regulations regarding exemption status under the Fair Labor Standards Act, which were scheduled to go into effect on December 1, 2016. In light of this injunction, there is no federal legal requirement at this time to increase the weekly salary for individuals to be exempt from overtime to the $913 per week that the new Regulations would have required under federal law. This injunction is being appealed, and employers should be prepared to act quickly in case the district court’s decision is overturned and the injunction lifted.

However, for New York employers, that is only half of the issue.

Employers in New York must also simultaneously comply with the state’s salary basis floor for the executive and administrative exceptions under the New York Labor Law (NYLL). That minimum is presently $675 per week or $35,100 per year. If that amount is not paid, employers cannot claim executive and administrative exception status under the NYLL regardless of the duties the individual performs, and such individuals will be eligible for additional compensation for hours worked over 40 per workweek even if they are exempt under federal law. The New York salary minimum is a mandatory pre-condition to be completely excepted from the state overtime requirements.

Moreover, proposed amendments will very likely increase these salary basis minimums for the executive and administrative exceptions effective December 31, 2016, with scheduled increases in subsequent years. Specifically, the New York State Department of Labor (NYSDOL) has amended the state’s Wage Orders to increase the salary threshold for the executive and administrative exceptions to $825 per week for large employers in New York City. If adopted, these regulations would amend the salary basis threshold in the NYSDOL’s Wage Orders covering the building services industry (12 N.Y.C.R.R. 141), miscellaneous industries and occupations (12 N.Y.C.R.R. 142), nonprofitmaking institutions (12 N.Y.C.R.R. 143), and hospitality industry (12 N.Y.C.R.R. 146). The inclusion of the miscellaneous industries Wage Order will extend these amendments to nearly all employers.

The public comment period on these proposed changes closed on December 3, 2016. If the proposed amendments are finalized by the NYSDOL, they would become effective on December 31, 2016.

Proposed Amendments to Salary Threshold for Executive and Administrative Exceptions

The proposed salary basis amendments contain different salary requirements based on an employer’s size and geographic location within New York State. Specifically, there are different salary requirements for “large employers” in New York City (employers with 11 or more employees), for “small employers” in New York City (employers with 10 or fewer employees), “downstate” employers (employers in Nassau, Suffolk, and Westchester counties), and employers in the “remainder of state” (employers outside of New York City, Nassau, Suffolk, and Westchester counties).

The below chart provides an overview of the proposed changes:

Effective Date

The effective date of the proposed amendments is December 31, 2016. While it is possible that the NYSDOL will withdraw or change the amendments before this date, it is more likely that they will be adopted without alterations and become effective on December 31, 2016.

Recommended Next Steps

In light of the increase in the salary threshold for the executive and administrative exceptions, employers should quickly identify and evaluate positions compensated below the new threshold and decide whether to reclassify employees as eligible for overtime under state and/or federal law, or raise their salaries. Employers should consider the hours worked for these employees to estimate the potential cost of paying overtime.

For those employees who will be reclassified as overtime eligible, employers should prepare talking points for managers and employees about the change, the reason for the change, and how the change will impact their compensation, benefits, and opportunities for advancement, if at all. Employers should also develop training and robust time reporting policies for reclassified workers who will not be accustomed to recording hours worked.

To the extent that reclassified employees previously were receiving bonuses, commissions, or other incentive compensation, employers will need to reevaluate those forms of compensation or carefully consider how to factor them into the regular rate of now-hourly workers. Employers should also be prepared to follow up and audit timekeeping practices for newly reclassified employees to ensure that they are following proper processes and procedures.