The Time Sheets They Are A-Changin’

Recent changes in state and federal law have altered the minimum wage and overtime requirements in the tri-state area. New York, New Jersey and Connecticut have become the latest states to increase their minimum wage rates beyond the $5.15 per hour federal minimum rate mandated by the Fair Labor Standards Act (“FLSA”). Last year, the New York State Senate approved a bill that will increase the state’s minimum wage rate incrementally over the next two years. The new rate, which is $6.00, will increase to $6.75 on January 1, 2006, and $7.15 on January 1, 2007. New Jersey’s minimum wage rate, which has equaled the $5.15 federal rate since 1999, will increase to $6.15 on October 1 of this year and then to $7.15 on October 1, 2006. Already at $7.10 since 2004, Connecticut’s minimum wage rate will increase to $7.40 on January 1, 2006, and to $7.65 one year later. Employees who rely upon gratuities as their primary source of compensation are subject to lower rates in all three states.

In addition to these wage rate changes, new FLSA regulations implemented last August by the U.S. Department of Labor will require employers to reclassify certain jobs as exempt or non-exempt from the act’s overtime pay requirements. Unfortunately, many small to midsize employers remain unaware of these changes and so have failed to come into compliance with the new law. The FLSA requires that workers be compensated at a rate of one and one-half times their regular wage rate — even if their rate exceeds the federal minimum wage rate — for each hour worked in excess of 40 hours each week. Essentially, the law says all jobs must be non-exempt and paid overtime unless certain jobs can be classified into one of the following five white-collar exemptions: executive, administrative, professional, outside sales, computer-related positions and highly compensated employees. The new regulations update, clarify and, in some cases, redefine those jobs that would fall under any one of these five classifications.

For any particular job to be exempt, it must satisfy three requirements. First, the minimum salary an employee can be paid to be eligible for exemption has increased to $455 per week, or $23,660 per year (with the exception of outside sales employees, for whom there is no minimum salary level). If an employee makes less than $455 per week, he or she generally cannot be exempt and must receive overtime pay. The DOL retail or fast-food sectors — have been converted from exempt to non-exempt status because of this increase in the minimum salary level.

Second, the employee must be paid on a “salary basis” (with the exception of hourly paid computer professional employees who make at least $27.63 per hour, as well as doctors, lawyers, teachers and outside sales employees). This means that the employee regularly receives a predetermined amount constituting all or part of the employee’s salary, which amount is not subject to reduction because of variations in the quality or quantity of work performed. Subject to certain exceptions, an exempt employee must receive his or her full salary for any week in which the employee performs any work without regard to the number of days worked or how well the job was performed.

Finally, to be exempt, the employee must also perform the duties of a bona fide executive, administrative, professional or outside sales employee as redefined by the new regulations. The previous rule required that an executive employee perform management duties and direct the work of two or more employees. The DOL now requires that an executive also be an employee with authority to hire or fire other employees or whose suggestions and recommendation as to hiring, firing, advancement, etc., are given particular weight. Note that under this rule the authority to discipline without effecting a change in employee status is insufficient to satisfy the executive duties test.

The new FLSA regulations are highly specific and subject to numerous exceptions. Thus, there are many pitfalls for the unwary employer. Tri-state employers would do well to consult with legal counsel or their human resources personnel to ensure compliance with their new minimum wage and overtime obligations.

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