On September 24, 2019, the U.S. Department of Labor (DOL) issued its final overtime rule as it relates to the minimum salary threshold for exempt employees. The DOL estimates that 1.3 million workers will be eligible for overtime pay as a result of its final rule.  Here is how the new rule will impact workers in Connecticut, Massachusetts and New York.

Through the end of 2019, the federal Fair Labor Standards Act (FLSA) requires that white-collar exempt employees (professional, executive and administrative employees) be paid at least $455 per workweek ($23,660 annually for a full-time worker). Traditionally, Connecticut’s salary threshold for exempt workers has been higher than that required under federal law. Connecticut’s short test for exemptions required a salary basis of $475 per week ($24,700 annually).  The new federal rule, which will take effect on January 1, 2020, raises the minimum salary threshold to $684 per week ($35,568 annually for a full-time worker). So as of January 1, 2020, federal law will outpace Connecticut with regard to the salary threshold for exempt employees.  As a result, exempt employees who are currently being paid less than $684 per week will need to have their salaries increased to meet this new threshold if the employer wishes to maintain the employee’s exempt status and avoid overtime exposure.  The new salary threshold is in line with the DOL’s proposal from earlier this year, which we blogged about here.

White collar exemptions under Massachusetts law are based on the salary and duty tests applied under the FLSA. So, exempt employees in Massachusetts will also have to be paid at the new higher salary threshold beginning January 1, 2020.

The federal increase in the white collar exemptions’ salary threshold has no effect on private sector employees in New York State, which uses tiered salary thresholds depending on where an employee works in the state. In New York City, large employers (11 or more employees) are required to pay exempt employees a minimum of $1,125.00/week.  Smaller employers in New York City are required to pay at least $1,012.50/ week ($1,125/week after December 31, 2019).  In Nassau, Suffolk and Westchester counties, the minimum salary threshold is $900/week ($975/week after December 31, 2019).  In the rest of New York State, the salary threshold is still higher than the new federal requirement, and requires employers to pay $832/week ($885/week after December 31, 2019).

The DOL’s new regulations also make changes to the “highly compensated employee” exemption, but Connecticut, Massachusetts and New York do not recognize this exemption for private sector employees.

Treatment of Nondiscretionary Bonuses and Incentive Payments

In recognition of evolving pay practices, the final rule permits employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to ten (10) percent of the standard salary minimum. For employers to credit nondiscretionary bonuses and incentive payments toward satisfying a portion of salary test, they must make such payments at least annually.

Next Steps:

Employers should identify employees impacted by the new rule and determine whether it makes sense to raise their salaries to meet the new salary threshold, thus maintaining these employees as exempt. In circumstances where increasing the salary does not make economic sense, employers will need to consider whether to maintain these newly reclassified employees as salaried nonexempt workers or convert them to hourly staff.

Communication throughout this process will be key. Reclassified employees often feel that they have been demoted, so employers will need to have a communication strategy in place to inform employees that any changes are based on new government rules.

To recap,

 In Connecticut and Massachusetts, effective January 1, 2020:

• Exempt white-collar employees must be paid a guaranteed salary of at least $684 per workweek.

In New York, effective January 1, 2020, the salary threshold will increase as follows:

• All New York City exempt employees must be paid at least $1,125.00/week, regardless of the size of their employer.
• Nassau, Suffolk and Westchester county exempt employees must be paid at least $975/week.
• Exempt employees in the rest of New York State must be paid at least $832/week.

For more information regarding how the DOL’s new rule will impact your organization, contact an attorney in Murtha Cullina’s Labor and Employment Group.