2019 has seen another bump in New York’s salary threshold for employees to be considered exempt from overtime pay. It’s a change that is important for employers to note and carefully comply with in order to avoid some costly consequences.

Under both state and federal law, most New York City employees who work more than 40 hours a week are entitled to receive “time-and-a-half” pay for every hour over 40 that they work. For instance, if an employee earns New York City’s minimum wage of $15.00 per hour during their 40-hour work week, they would then receive $22.50 for each additional overtime hour.

As with most rules, however, there are always a few exceptions. One such exception is the “executive exemption” that exempts certain employees from the overtime requirements. The criteria for this exemption are based on an employee’s weekly salary and role within the company. New York State requires that exempt employees meet all of the following parameters:

1. primary duty consists of the management of the institution/enterprise in which such individual is employed or of a customarily recognized department or subdivision
2. customarily and regularly directs the work of two or more full-time employees or their equivalent (e.g. two 40 hour/week employees, four 20/hour employees, etc.)
3. has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring or firing and as to the advancement and promotion or any other change of status of other employees will be given particular weight
4. customarily and regularly exercises discretionary powers
5. is paid for their services a salary, inclusive of board, lodging, or other allowances and facilities, of not less than the amounts listed

While the first four requirements remain pretty much standard, the fifth criterion that refers to a threshold wage for exemption varies by employer size, location, and year. For New York City specifically, the executive exemption threshold for “large” employers (i.e. companies with 11 or more people) was first raised at the end of 2016, again at the end of 2017, and most recently at the end of 2018.

In 2017, an employee was entitled to overtime if they were paid a salary of less than $825 per week ($42,900 annually). This threshold subsequently jumped to $975 per week ($50,700 annually) for 2018 and then to $1,125 per week ($58,500 annually) for 2019. This change has effectively enlarged the pool of eligible non-exempt employees, potentially granting overtime to a higher portion of New Yorkers.

For employers who find themselves with employees affected by the new exemption rules, there are two methods with which to ensure compliance. The first is to raise the base salary of an employee to meet the threshold requirement, thereby still rendering them an exempt executive. The alternative solution is to reclassify that employee’s position as non-exempt. Employers who do not classify their non-exempt employees properly (whether to avoid the obligation of overtime pay or due to simple oversight) can incur hefty penalties when being audited. Additionally, the statute of limitations on such violations is six years

If you are an employer in New York City employing at least 11 people, it is important to take into account the effect the new salary threshold could have on your company. Understanding the key differences in employee classifications is critical to complying with state and federal law. If you have any questions regarding New York’s new salary threshold regulations, please contact Philip S. Mortensen.