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And You Thought Exempt Wage Level Was Done

October 21, 2019

By Anthony Kaylin, courtesy of SBAM Approved Partner ASE

For many, the wait for the exemption wage level is over.  The final regulations published at the end of September raises the “standard salary level” from the currently enforced level of $455 to $684 per week or from $23,600 to $35,568 per year.  Yet for those employers with multi-state locations, that’s only the beginning of the analysis.  A number of states are starting to act on their own to determine exempt level wages, and Michigan may eventually be one of those states.

Take the state of Washington – last June the state’s Department of Labor & Industries announced a proposal to make most workers who earn less than $79,872 eligible for overtime by 2026.  In California those making less than $49,920 at large employers and less than $45,760 at small employers are eligible for overtime pay. By 2023, the new salary threshold will be $62,400.  In New York, depending on the type of employer and location, current salary thresholds range from $43,290 to $58,500.  Massachusetts has proposed a bill that would make the new exempt level $64,000. Pennsylvania’s Department of Labor & Industry is planning to promulgate rulemaking to make the exempt threshold $47,892 in 2022.

In part, the proposed increases in many of these states may not have the impact that is expected.  For example, Michael Haith, the chief executive of Denver-based fast-casual chain Teriyaki Madness LLC, believes the competitive labor market is such that his restaurant managers can make up to $60,000 more than the thresholds proposed in Pennsylvania and Maine.  One proposed solution Mr. Haith identifies if this trend becomes very prolific is to keep these higher paying workers only at 40 hours and hire additional staff.

Another way an exempt employee may be recognized as non-exempt is the duties test.  The federal law is fairly clear as to these tests.  Meeting rising salary thresholds does not guarantee exempt status.  The various duties tests (e.g. Executive, Administrative, Professional, etc.) must be met.  However, some states have made these tests narrower than the federal tests.   For example, California requires that an employee falling under one of the exempt tests must perform exempt job duties as defined by California law more than 50% of the time. 

New York will weigh a variety of factors to determine if a duties test is met before considering an employee as exempt. For example, factors for the Executive Exemption that are considered in determining whether an employee’s recommendations are given “particular weight” as to hiring, firing, advancement, promotion, or any other change of status include (but are not limited to): 

  • Whether it is part of the employee’s job duties to make such recommendations

  • How often such recommendations are made, requested, and relied upon

  • The executive’s recommendations must pertain to employees whom the executive customarily and regularly directs. It does not include occasional suggestions.

So how should a multi-state HR manager deal with the various exempt rule differences, from thresholds to duties?  First, HR should engage legal counsel to provide a roadmap between comparisons of the federal and the state laws in which their employees are situated.  Further, HR needs to ensure that payroll is trained on these exemptions and track hours for employees appropriately in the various states when necessary.  Also, HR needs to know which states require overtime for time over eight hours per day versus 40 hours per week (e.g. California, etc.) and when holiday pay may be required to be paid overtime (in Michigan it is not a requirement to pay holiday pay like overtime).  Finally, HR needs to review its FLSA policies to ensure the correct base is identified for paying overtime, which is a growing FLSA class action lawsuit trend.

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