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Raising Minimum Wage: The Effect on Exempt Employees

On April 4, 2016, the governors of New York and California each signed legislation that will bring their respective state’s minimum wage to $15 per hour[1].  The legislation, signed by California Governor Jerry Brown, makes California the first state to commit to raising the minimum wage to $15 by the end of 2022.  Similarly, in New York, the $15 minimum wage will go into effect, by 2018, in New York City for businesses with more than 10 employees, then statewide over the next five years.  Certainly, the “Fight for $15” campaign has not only created momentum among other states to increase their minimum wage, but has re-ignited the push to increase the federal minimum wage, which is currently $7.25 per hour.

Still, the “Fight for $15” campaign may give pause to “exempt” employees since a minimum wage increase invariably raises the wages of over-time protected employees or non-exempt employees[2].  Thus, with an increased minimum wage, the weekly salary of a non-exempt employee would exceed the “salary level” requirement for employees, who are not entitled to overtime pay based upon their exempt status.

When the Fair Labor Standards Act (FLSA)[3] was enacted in 1938, Congress exempted executive, administrative, and professional employees, referred to as “EAP” or “white collar” exemptions, from federal minimum wage and overtime requirements.  These exemptions were premised on the belief that exempt workers earned salaries well above the minimum wage and enjoyed other privileges, including above-average fringe benefits, greater job security, and better opportunities for advancement, setting them apart from workers entitled to overtime pay.[4]  However, at present, the salary level for exempt employees under federal regulations is $455 per week or $23,660 per year, which is below the poverty threshold for a family of four.[5]  While the salary of a non-exempt employee, who earns $15 per hour, is $600 per week or $31,200 per year.

Mindful of this, the United States Department of Labor (DOL) proposed sweeping new regulations, last June, designed, among other things, to increase the minimum salary levels from $23,660 to $47,892 annually in order for employees to be considered “exempt.”[6]  The DOL concluded that the “absence of an increase in the salary level for exempt employees when combined with past (and future) increases to the minimum wage further undermines the effectiveness of the salary level to serve as a line of demarcation between overtime protected and exempt workers.”[7]  Lastly, the DOL also proposes a mechanism that would automatically update salary levels on an annual basis to ensure those levels serve as an effective dividing line between exempt and nonexempt employees.

With the DOL’s proposed amendments possibly becoming final in either July 2016 or later this year, it bears watching how this potential offshoot of the “Fight for $15” movement will affect the classification of non-exempt and exempt employees and the workforce in general.

 

By:  Sally A. Sattan, Esq. and Ty Hyderally, Esq.

 

This blog is for informational purposes only.  It does not constitute legal advice, and may not reasonably be relied upon as such.  If you face a legal issue, you should consult a qualified attorney for independent legal advice with regard to your particular set of facts.  This blog may constitute attorney advertising.  This blog is not intended to communicate with anyone in a state or other jurisdiction where such a blog may fail to comply with all laws and ethical rules of that state of jurisdiction. 

 

[1] See John Bacon, $15 Minimum Wage Coming to New York, Calif., USA Today (April 5, 2016).

[2] In general, non-exempt workers must be paid time and a half their regular rate of pay for any hours worked in excess of 40 in a given workweek.

[3] 29 U.S.C. §201 et seq.

[4] See “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees”; Notice of proposed rulemaking (NPRM) 80 Federal Register 38515 (6 July 2015).

[5] Id. at 38555.

[6] Id. at 38522.

[7] Id. at 38555.

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