Employers often believe that if they pay an employee an annual salary, they don’t have to worry about paying the employee any additional wages for overtime hours. While paying a salary is one factor in the overtime exemption analysis, it is not the only factor.

As a starting point, employees are entitled to overtime pay (at a rate of 1.5 times their regular rate of pay) for all hours worked over 40 in a work-week unless they are exempt from the overtime pay requirements of both federal and state law.

Establishing an Overtime Exemption

For the most common overtime exemptions, typically known as the “white collar exemptions,” there are generally two primary tests that must be met in order for an exemption to apply.

Salary Basis Test:

To qualify for a white-collar overtime exemption, an employee must generally be paid on a salary basis.  Being paid on a salary basis means the employee will receive the same salary each week regardless of the number of hours actually worked.  The salary cannot be reduced because of variations in the quality or quantity of the employee’s work.

Currently, under federal law, the minimum weekly salary necessary to qualify for an overtime exemption is $684 per week, or $35,568 per year.  The Federal Department of Labor recently proposed regulations that would increase the minimum salary level to $1,059 per week ($55,068 annually).

In New York, the current minimum salary an employee must receive to qualify for certain white-collar exemptions is $1,125 per week ($58,500 per year) in New York City, Long Island, and Westchester, and $1,064.25 per week ($55,341 per year) in the rest of the state. 

These numbers are anticipated to rise in 2024 to $1,200 per week ($62,400 per year) in New York City, Long Island, and Westchester and $1,124.20 per week ($58,458.40 per year) in the rest of the state.  Additional increases are proposed for 2025 and 2026.

Duties Test:

As stated above, just being paid a salary does not make an employee exempt from the overtime pay requirements. An employee’s specific duties and responsibilities must also fit them into one of the overtime exemptions. This requires an individualized and fact-specific inquiry.

Getting it Wrong:

For employers, the costs of misclassifying an employee as exempt are high. In addition to the back-wages owed, federal and New York State law provide for 100% liquidated damages, interest and attorneys’ fees. The New York State statute of limitations is six years.

Getting an employee’s exemption status correct is critical and employers with questions should obtain support.