New York State Minimum Wage Rate and Exemption Salary Thresholds Set to Increase

Since a Texas federal judge blocked the U.S. Department of Labor’s overtime rule from taking effect in November, human resource managers, payroll professionals and employment attorneys (including over here at Employment Matters) have been abuzz about the fact that, at least for now, employers do not need to make sweeping changes to their compensation practices to comply with the rule.  What has been less discussed, however, is the impact on New York employers of the New York State Department of Labor’s amendments to New York’s Wage Orders, which become effective on Saturday, December 31, 2016, and which will, among other things, significantly increase the State’s minimum wage rate as well as its the minimum salary thresholds for individuals classified as exempt executives and administrative employees.

The NYSDOL had proposed these changes several months ago and the comment period ended back on December 3rd.  But the final rule was issued just yesterday, unchanged from its proposed form.  With the clock ticking, New York employers must and should pay immediate attention to these changes and should act quickly to fulfill their ongoing notice and posting obligations while adjusting compensation levels accordingly.  We summarize the Wage Order amendments below.

New York increased its minimum wage rates

The NYSDOL’s amendments to the Wage Orders establish automatic, annual minimum wage increases, which generally differ depending on the location of an employer’s operations within the State and the number of individuals it employs.  For example, on December 31st, for so-called “large” employers (those with 11 or more employees) located in New York City, the minimum wage will increase nearly 20% from its current $9.00 per hour rate to $11.00 per hour, and it will continue to increase over the next two years until it reaches $15.00 per hour.  For “small” New York City employers (those with fewer than 11 employees), the minimum wage will increase in smaller increments and will take an additional year to reach $15.00 per hour.

More specifically, the minimum wage for New York City employees will increase in accordance with the following schedule:

For New York employers operating outside of the City, the amendments provide annual minimum wage increases that vary regionally, but not with respect to workforce size.  The amendments raise the minimum wage annually for employees in Long Island and Westchester (Downstate) based on a schedule that achieves a $15.00 per hour minimum wage by the end of 2021.  For New York employees based anywhere other than the City and Downstate, the minimum wage will reach $12.50 per hour at the end of 2020.  The full schedule follows below:

The minimum wage for the remainder of the state will not necessarily stop at $12.50, however.  Instead, starting in 2021, the Director of the Division of Budget will determine what annual percentage increase, if any, will be made to that rate based on economic indices, including the Consumer Price Index.

Finally, the amendments do not impact the schedule previously implemented for fast food workers, which only distinguishes between employers in New York City and the remainder of the State.  That schedule continues as follows:

Further, the NYSDOL noted, in an FAQ section on its website, that employers must pay an employee the applicable rate based on where the employee works, not based on where the employer’s main office is located.  Thus, large NYC employers with employees Downstate or in the remainder of the State, would utilize the applicable Downstate or remainder of the State minimum wage rates rather than the City rates for employees working in those areas.  If an employee works in two regions, then the employer is free to pay the employee at the applicable rate for any hour worked in that particular region.  Of course, however, if the employer decides to pay at different rates, it must record the hours worked at each location. The employer may also use a blended overtime rate when this occurs.

New York also increased the exemption salary thresholds

The Wage Orders, as amended, also significantly increase the minimum weekly salary thresholds necessary for an employer to satisfy the State's executive and administrative exemptions.  (The professional exemption has no salary threshold under New York law.)  Once again these amounts vary depending on the size of the employer and the location of its employees.  For example, while exempt employees in New York City previously only had to earn $675 per week, which equated to a $35,100 annual salary, the new minimum weekly salary for exempt New York City employees working for “large” employers is scheduled to increase to $825 per week, which will equate to an annual salary of $42,900, and it will continue to increase until it reaches $1,125 per week, which will equate to an annual salary of $58,500.

More specifically, the amendments increase the minimum weekly salary for exempt New York City employees according to the following schedule:

Similar to the amendments’ minimum wage provisions, the exempt salary provisions provide scheduled annual increases for New York employees located outside of the City based on whether the employee works Downstate or in the remainder of New York State, without regard to the size of the employer’s workforce.  Specifically, the amendments require exempt employees working Downstate to earn a minimum weekly salary of $1,125 per week by the end of 2021.  Exempt workers in the remainder of New York State must earn at least $937.50 per week by the end of 2020.

The minimum exempt salary requirements for employees in New York State are based on the following schedule:

Many may be left wondering why the NYSDOL did not shift course on the proposed increases to the exemption thresholds after the FLSA exemption thresholds failed to go into effect.  According to the NYSDOL, it had no choice, as New York State law operates independent of the Fair Labor Standards Act and requires these thresholds to increase proportionally to any increases in the state minimum wage (75x the minimum wage rate to be exact), and the minimum wage rates were previously increased during the state budget-making process back in April 2016, well before the DOL's overtime rule was blocked.

Further, the NYSDOL notes that only employers subject to the Miscellaneous Industries and Occupations Wage Order may take advantage of a quirk in the law allowing employers to pay overtime at one and one half times the statutory minimum wage (which will be $16.50 next year for large NYC employers) rather than at the employee’s regular hourly rate of pay, where the employer pays the employee subject to that Wage Order less than the state salary threshold (i.e. $825 per week), but more than the Federal salary threshold ($413 per week).  This could produce certain cost savings for employers looking to pay a lower annual salary than would be required to meet the state exemption threshold, but employers must proceed very carefully before going this route, because of the separate compliance challenges it raises.  Generally, employers should explore all of their options in determining whether and how to meet the salary threshold.  We laid out those options in a previous post we did just before the USDOL's new overtime rule was blocked and encourage you to read it.

New York made additional changes to other wage-related items

In addition to the new minimum wage and exemption salary requirements, the amendments also make changes to other wage-related items.  For example, the Hospitality Wage Order’s new schedule for cash wages and tip credit thresholds for tipped food service employees are as follows:

There are similar schedules for meal and lodging credits and uniform allowances, among other schedules for other items and other types of employees in other industries.  A summary of the schedules for each Wage Order is located here.

So what’s next?

New York employers should move quickly to ensure their payroll practices are updated to comply with every aspect of the amended Wage Orders that affect their workers, regardless of whether they have made changes in response to the Federal DOL’s currently-blocked overtime rule.  Given the breadth of the State DOL’s amendments to the Wage Orders and the number of specific new requirements they impose, employers who fail to take a close look at their policies and make necessary adjustments could face serious violations and penalties in the years ahead.

Employers should work to immediately update their wage statements as necessary to reflect the new rates and other required information (i.e. tip credit), and employers in the hospitality industry should also move quickly to issue new pay notices.  All employers should also update their minimum wage posters, which the department has made available here.  Finally, as we head into the New Year, employers should determine whether to increase the weekly salaries of their currently exempt executive and administrative employees to meet the new thresholds.

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