This post is part of a new series that specifically discusses employment law issues for startups and small businesses operating in New York State and New York City.
A common misconception is that employees who receive a salary (as opposed to an hourly wage) are not entitled to overtime pay. The reality is that salaried status is only one factor in whether an employee is eligible for overtime pay. This post contains an overview of the most common overtime exemptions under federal and New York State law for employers conducting business in New York State.
Federal and/or state law generally require that most employees in the United States be paid at least the minimum wage for all hours worked plus overtime pay at a rate of 1.5 times an employee’s regular rate of pay for all hours worked over 40 hours in a workweek. However, federal and/or state law also provide for “exemption” from the minimum wage and overtime pay requirements for employees occupying positions that meet certain tests.
Some states (like New York) have their own tests for determining whether an employee is exempt from the minimum wage and overtime pay requirements. Other states either follow federal law or decline to address overtime pay at all. In states that decline to address overtime pay, applicable federal law would apply. Also, in states with their own tests, an employee must meet both the applicable federal and state law tests in order for the employee to be exempt from the minimum wage and overtime pay requirements. This means, that in a state like New York, if the employee only qualifies for an exemption solely under applicable federal law, but not under applicable New York state law, an employer cannot classify an employee as exempt from overtime.
With this in mind, here are the most common exemptions, as well as their tests:
Executive Exemption
Federal Test
To qualify for the executive exemption under federal law, all of the following tests must be met:
- The employee must be compensated on a salary basis at a rate not less than $684 per week ($35,568 per year);
- The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
- The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
- The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
New York Test
To qualify for the executive exemption under New York law, all of the following tests must be met:
- The employee must be compensated on a salary basis at a rate not less than $1,125 per week ($58,500 per year) in NYC or Nassau, Suffolk and Westchester counties or $937.50 per week ($48,750 per year) in the remainder of the state;
- The employee’s primary duty must be managing the enterprise;
- The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent;
- The employee must have the authority to hire or fire other employees;
- The employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight; and
- The employee customarily and regularly exercises discretionary powers.
Administrative Exemption
Federal Test
To qualify for the administrative exemption under federal law, all of the following tests must be met:
- The employee must be compensated on a salary basis at a rate not less than $684 per week ($35,568 per year);
- The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
- The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
New York Test
To qualify for the administrative exemption under New York law, all of the following tests must be met:
- The employee must be compensated on a salary basis at a rate not less than $1,125 per week ($58,500 per year) in NYC or Nassau, Suffolk and Westchester counties or $937.50 per week ($48,750 per year) in the remainder of the state;
- The employee’s primary duty must be the performance of office or non-manual work directly related to management policies or general business operations; and
- The employee regularly and directly assists the employer (or an employee employed in a bona fide executive or administrative capacity) or performs under general supervision, work along specialized or technical lines requiring special training, experience or knowledge; and
- The employee customarily and regularly exercises discretion and independent judgment.
Learned Professional Exemption
Federal Test
To qualify for the learned professional exemption under federal law, all of the following tests must be met:
- The employee must be compensated on a salary or fee basis at a rate not less than $684 per week ($35,568 per year);
- The employee’s primary duty must be the performance of work requiring advanced knowledge, which is defined as work predominantly intellectual in character and includes work requiring the consistent exercise of discretion and judgment;
- The advanced knowledge must be in a field of science or learning; and
- The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
New York Test
To qualify for the learned professional exemption under New York law, all of the following tests must be met:
- The employee must be compensated on a salary basis at a rate not less than $1,125 per week ($58,500 per year) in NYC or Nassau, Suffolk and Westchester counties or $937.50 per week ($48,750 per year) in the remainder of the state;
- The employee’s primary duty must be the performance of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized instruction and study (this is distinguished from a general academic education, an apprenticeship, and/or training in the performance of routine mental, manual, or physical processes);
- The employee’s work requires the consistent exercise of discretion and judgment in its performance;
- The employee’s work is predominantly intellectual and varied in character (as opposed to routine mental, manual, mechanical or physical work); and
- The employee’s work is of such a character that the output produced or the result accomplished cannot be standardized in relation to a given period of time.
Creative Professional Exemption
Federal Test
To qualify for the creative professional exemption under federal law, all of the following tests must be met:
- The employee must be compensated on a salary or fee basis at a rate not less than $684 per week ($35,568 per year); and
- The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
New York Test
To qualify for the creative professional exemption under New York law, all of the following tests must be met:
- The employee must be compensated on a salary basis at a rate not less than $1,125 per week ($58,500 per year) in NYC or Nassau, Suffolk and Westchester counties or $937.50 per week ($48,750 per year) in the remainder of the state;
- The employee’s primary duty must be the performance of work that is original and creative in a field of artistic endeavor, and produces a result that depends primarily on the invention, imagination, or talent of the employee;
- The employee’s work requires the consistent exercise of discretion and judgment in its performance;
- The employee’s work is predominantly intellectual and varied in character (as opposed to routine mental, manual, mechanical or physical work); and
- The employee’s work is of such a character that the output produced, or the result accomplished, cannot be standardized in relation to a given period of time.
The New York tests are much more stringent than the federal tests. This means that there may be situations where a position qualifies for an exemption under federal law, but not under New York law. In those cases, and where both federal and New York law applies, the position cannot be classified as exempt and the individuals occupying those positions must be paid overtime.
There are also number of other exemptions under federal law, some of which do not exist under New York law. For example:
- Outside Sales Exemption (New York has its own test)
- Computer Employee Exemption (this exemption does not exist under New York law)
- Exemption for Highly Compensated Employees (this exemption does not exist under New York law)
Where an exemption does not exist under New York law (for example, the computer employees exemption), the position must still meet an exemption under both applicable federal and New York law in order to be considered exempt from the overtime payments.
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