Effective July 24, 2009, the minimum salary that an employee must receive to qualify for the executive or administrative exemption from overtime pay requirements in New York increased to $543.75. It was $536.10. Because this amount differs from the exempt salary amount under the federal Fair Labor Standards Act (“FLSA”) of $455, employers in New York should evaluate their pay practices to ensure compliance with both state and federal law. The differences between federal and New York law are described below.

 

Common Minimum Wage and Overtime Requirements

Both New York law and the FLSA require employers to pay non-exempt employees a minimum wage of $7.25 per hour, and to pay one and one-half times the employee’s “regular rate” for all hours worked in excess of 40 in a work week. In addition, both New York and federal law provide for categories of “exempt” employees to whom the minimum wage and overtime requirements do not apply. The most common categories are executive, administrative, and professional employees. In order to satisfy the federal and state exemption criteria, such employees must be paid on a salaried basis, and they must also satisfy certain duties tests. The duties tests under the FLSA and New York law are very similar.

Differences in the Salary Amount and Its Consequences

But the salary amounts necessary to satisfy the salary basis of the exemptions are different. While New York now requires payment of a weekly salary of $543.75 for the executive and administrative exemptions, with no minimum salary for the professional exemption, the FLSA requires payment of only $455 per week for all three exemptions. The differing state and federal exemption amounts create three potential categories of employees: (1) employees who are non-exempt under both federal and state law; (2) employees who are exempt under both federal and state law; and (3) employees who are exempt under federal law, but not under state law because they only meet the salary test under federal law. (It is also possible to have a professional employee who is exempt under state law because it does not have a salary test for professionals, but who is not exempt under federal law because the professional is paid less than $455 per week.)

An employer’s overtime obligations toward employees in the first category – non-exempt – are the same under federal and state law: pay time and a half the regular rate for hours worked in excess of 40 in a week. An employer’s obligations to employees in the second category are also the same under both federal and state law: no overtime obligation because the employee is exempt under both laws.

But the third category of employees – exempt under federal law, but not state law – creates a complication. When an employee meets the duties test for the executive or administrative exemption, but meets only the federal salary test, New York’s General Wage Order, as interpreted by the New York State Department of Labor (“NYSDOL”) requires that the employee receive one and one-half times the state minimum wage (not the “regular rate”) for each overtime hour worked in a given work week, up to a cap of $543.75 in total wages for the work week. So, for example, an employee who meets the duties requirement of the administrative exemption but was paid a salary of $500 for a week in which she worked 50 hours would be entitled to $508.75. How do we get there? The regular rate is $10.00 per hour, yielding straight time pay of $400 for the first 40 hours of work. The overtime calculation is, however, based on the minimum wage, not the regular rate, so the employee is entitled to one and one-half times the minimum wage of $7.25 for the 10 hours of overtime, or 10 hours at $10.875 for a total of $108.75 in overtime. Adding the straight time pay of $400 yields a total of $508.75. So the employee is entitled to an additional $8.75 in overtime pay. While New York law requires payment of overtime at one and one half times the state minimum wage, it does not prohibit payment at one and one half times the regular rate, if the regular rate is higher than the state minimum wage.

Unfortunately, these calculations are rather complicated. In addition, this interpretation of the New York General Wage order is based on opinions issued by the NYSDOL years ago. New York employers are advised to carefully analyze their payment schemes for employees who are exempt under federal law, but who do not satisfy the New York salary test. Failure to pay overtime to an employee who is exempt under federal but not state law could result in potential liability for unpaid wages, liquidated damages, civil fines and reimbursement of attorney’s fees to claimants who commence litigation.