Employers need to prepare for two big changes going into effect next month. The new rules for determining whether an employee is “exempt” from overtime pay and increases in minimum hourly wages will have a significant impact on businesses. Here’s what you need to know:

Increase in Federal Exemption Status

Effective December 1, 2016, the Federal Department of Labor (“DOL”) “white collar” exemption from overtime pay will take effect. The DOL proposed this change over a year ago, and it was officially enacted six months ago with no further extensions allowed. Therefore, employers will be obligated to comply on December 1, 2016. Under the rules, the threshold for an employee to be exempt from overtime compensation will increase from $23,660 to $47,476 per year. In addition, the DOL has increased the minimum salary for “highly compensated” employees from $100,000 to $134,004 per year.

These changes mean that if your Company presently has “exempt” employees, specifically supervisors and managers, earning less than $47,476 per year, in order to comply with Federal law, you will be required to adjust their compensation by either: a) increasing their salary to meet the threshold, or b) changing their status to “non-exempt” and paying them an hourly salary as well as overtime when they work over 40 hours per week. Similar adjustments will be required for the “highly compensated” employees.

Notably, even if an employee meets the “salary” threshold, they still must meet the “duties” test set forth by the DOL to be qualified as exempt. Thus, if an employee earns over $47,476 per year, they may still be qualified as a non-exempt employee, if their duties do not fall within an executive, administrative, professional, computer specialist or outside sales exemption.

Increase in Minimum Wage

Under New York State law, minimum wage is presently $9 per hour. Effective December 31, 2016, minimum wage will increase between $1.00 and $1.50 per hour depending on whether employees are employed in New York City, Long Island or elsewhere. Over the next five years, minimum wage will increase throughout New York State to $15.00 per hour. The rate of increase will depend on where the employee performs services and how many employees the employer regularly employs.

In addition to the minimum wage increase, employers must continue to pay their employees overtime if they work over 40 hours per week at a rate of one and a half times their regular hourly rate. Employers in the hospitality industry must also comply with appropriate tip credits and spread of hours pay.

To comply with these new rules, business owners must educate themselves on the exempt versus non-exempt status of their employees, and understand how to properly work within the law so employees are paid properly. Violations of wage and hour rules can result in significant liability, including interest and penalties.

If you would like more information regarding the new rules, or would like to discuss a strategy for how to best comply with the law, please contact partner, Jeffrey Ettenger at 631-777-2401.

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