Changes to New York and California Exempt Salary Threshold in 2019
In 2017, plans by the Department of Labor (DOL) to increase the salary threshold for exempt employees across the US were scrapped after challenges from multiple states. Whilst these plans continue to be postponed, this year the states of California and New York decided to raise their own exempt salary threshold for 2019.
The changes are effective from December 31st, 2018 for New York and January 1st, 2019 for California. This could mean some of your workers may need to start receiving overtime due to the increase in the amount a worker needs to earn to be salaried exempt. The increases are as follows:
California state increases from $45,760 to $49,920
California state increases computer exemption from $90,790.07 to $94,603.25 (or $45.41 hourly rate)
New York City increases from $50,700 to $58,500 for employers with 11 or more employees (from $46,800 to $52,650 for employers with 10 or fewer employees)
Nassau, Suffolk & Westchester Counties increases from $42,900 to $46,800
Remainder of New York State increases from $40,560 to $43,264
Who will the changes affect?
If your workers are currently overtime exempt and you’re paying a salary less than the amounts above, these changes apply to you. So as a next step, you’ll need to restructure your compensation plan or start paying overtime. We know that for many roles, including recruitment, it’s common to pay a worker a low base rate and then to incentivize sales behavior through commissions. While it’s still possible to pay workers through commission after the increases come into effect, you may need to consider increasing their salary, so that you will not be required to pay overtime. Some options you may want to consider switching to include:
Overtime exempt - option 1
Increase your worker salary to the amounts above and pay commissions and bonus on top. You are allowed to reduce their commission and bonus structure however we strongly suggest any issuing of new contracts with new changes has the correct language and is updated as required.
Overtime exempt - option 2
If your workers are paid through a mix of both salary and commissions, you may be able to establish a program for a guaranteed draw against commissions. In this way, the draw on commissions would generally count towards the minimum salary threshold. For more information about how to accomplish this, please visit the commissions FAQ page on the New York State DOL website.
Pay Overtime
You can maintain the workers on their current salary and convert to an hourly rate. They will then be required to submit timesheets and will receive OT as required in the state of employment*. You’ll want to consider building your figures correctly as you’ll need to consider public holidays, PTO and holiday pay and how this flows through to the rate.
Key points to remember
There is no salary threshold for outside sales employees. These are employees with primary duties of making sales and who are customarily and regularly engaged away from the place of business. So, your Business Development and sales staff who do not work from a central location are may be exempt from the upcoming changes.
We advise having a strong plan of action and working with your compliance / legal team on preparing for the change.
You are legally allowed to change your worker’s pay structure, but make sure you clearly communicate these changes and how they will affect them. You’ll also need to make sure that any changes issued are 100% compliant with the new law.
If you don’t comply by the stipulated date you could face penalties, fines and legal action from the state and country governments.
It is important to note that there is no federal increase yet. The Department of Labor issued a notice of proposed rulemaking which means they will likely increase the federal rate sometime in 2019 but as of November 2018, that hasn’t gone into effect yet.
Potential exposure for overtime that you could you face
NY: Any hours over 40 per week would be time and a half
CA: Any hours over eight per day are at time and a half, any hours over 12 per day are double time. If a worker is working more than 6 consecutive days, the 7th consecutive day will be paid at double time.
If you’d like to talk through these changes with one of our team, get in touch!
Disclaimer: All information written here is for general informational purposes only and is not intended to be a substitute for professional and/or legal services.