While most people are happy to leave 2020 behind, employers must take note of the changes to both the federal and New York State hourly wage and salary increases that have taken effect in 2021.
Minimum Wage Increases
Effective December 31, 2020, New York’s minimum wage, tip credit and minimum salary levels in New York will increase for many employers. It should be noted that the increases are based on the employer’s location.
As of December 31, 2020, the minimum wage rate structure is as follows:
Minimum Salary Levels
Effective January 1, 2020, the minimum salary thresholds for employees to be deemed exempt from overtime under federal law is $684.00 per week (approximately $35,568 annualized) for exempt executive, administrative and professional employees. Employers should note that this does not apply to practitioners of law or medicine or bona fide teachers, for whom there is no minimum salary threshold.
New York employers should take note that generally the federal minimum salary threshold is irrelevant because in most cases New York requires employers to pay exempt employees a minimum weekly salary that is higher than the federal minimum. However, the major exception is that federal law sets a minimum salary for professional employees (other than those in law, medicine or teaching), and New York does not set a minimum salary for professional employees.
Effective December 31, 2020, New York’s minimum salary threshold for exempt executive and administrative employees is as follows:
What does this mean for employers? Many employers will notice that based on the increases in overtime salary thresholds, their currently employed white-collar, salaried employees may soon be compensated at a wage that falls below what their overtime salary threshold will increase to. This means that some white-collar employees who were once deemed to have exempt status, will fall into the non-exempt status. Employers have three options to deal with this change.
1. Require employees to track their hours and do not allow employees to work more than 40 hours per week. This seems like the simplest fix, it may require employers to implement a new time keeping process. However, this leads to major implications and consequences for a business if the employee’s sudden reduction in hours causes great difficulty to complete projects.
2. Transition employees to hourly pay and pay them overtime. This option may be costly for employers who have employees averaging between 45 and 50 hours per week. Since the overtime rate is 1.5 times the normal hourly rate, this essentially means employers would give those employees a substantial raise.
3. Simply raise salaries above the new overtime threshold. This permits employers to award employees with a fairly sizeable raise which will increase employee morale and productivity. This is also much less costly than the second option and allows those employees to maintain their exempt status. Additionally, this won’t require employees to track their time and cap their weekly hours at 40 hours, and employers won’t have to pay substantial overtime wages.
Although this process may seem simple when dealing with one employee who is about to lose his/her/their salaried, exempt status, it becomes extremely complex when employers need to account for several employees in this situation. Hence, it is important for employers to take these changes into consideration in order to make the best decisions for your business.