Do I Have to Pay My Employees Overtime? Here’s What New York State Law Says

There are several aspects of New York State laws to keep in mind when classifying an employee as exempt or non-exempt from overtime pay. Getting it right will save you from costly mistakes in the future.

By Larry Kagan, Founder & CEO, Baron Payroll

It may be easier to pay an employee a salary – you can avoid having to keep track of their hours, their pay will be the same every week.

But it may not always be legal.

If you’re trying to figure out whether you need to pay an employee overtime, it’s not as simple as deciding whether you want to pay an employee a salary or hourly. Legal requirements set forth who receives overtime and who doesn’t.

The terms people often use are hourly and salaried, and that salaried workers don’t have to be paid overtime. That’s not the case.

Instead, the terms to focus on are exempt and non-exempt. All employees must be classified as exempt or non-exempt. They also should have a written job description that details the work they do.

An employee either meets qualifications to not be required to receive overtime pay, or they do not meet those qualifications and must receive overtime pay.

State and federal laws dictate whether an employee is exempt from overtime. Since New York State’s requirements are more stringent, they are the ones employers who operate in the state need to follow. An employee must first meet or exceed a certain level of pay to be considered exempt. They then must fall into specific categories of workers who can be exempt from overtime.

At the beginning of the year, the threshold for what’s considered an exempt employee in New York State increases again.

Beginning in 2021, in Nassau, Suffolk and Westchester counties, the minimum salary to be considered exempt will be $1,050 per week, or $54,600 per year. In the rest of the state, it’s $937.50 per week. New York City’s rate won’t increase this year; it remains $1,125 per week.

By the end of 2021, employees in New York City and in Nassau, Suffolk and Westchester counties will need to make $1,125 per week to be considered exempt from overtime. For the rest of the state, the rate will remain $937.50 per week.

If you had an employee who barely met the requirement to be considered exempt this year, they now will not be, unless they receive a raise.

How can an employee be exempt?

If an employee who is not exempt from overtime works more than 40 hours per week, they receive time-and-a-half pay for their overtime hours.

Overtime pay is not optional. An employee can’t waive their right to receive it; otherwise, employers would only hire those who said they didn’t want to be paid overtime.

First, an employee must meet or exceed the financial threshold required by New York State (on Long Island, that will be $1,050 per week in 2021). If they don’t meet this threshold, they are not exempt from, and must be paid, for overtime.

If they do meet this income threshold, they must pass also pass a second test. Your employee must be a specific kind of worker with certain kinds of duties that fall into various categories of exemptions.

Many of these exemptions include work that exercises independent judgment, where an employee makes important decisions that impact the company. Specific exemptions include executive, administrative, professional, outside sales and other skilled-work positions.

An employee’s title, even if it includes the words used in the exemptions, isn’t as important as the actual work they do. Their job duties dictate whether they should be considered exempt.

Generally, if a person works with their hands, they likely are entitled to overtime.

Getting it wrong can be costly

Knowing how to properly classify an employee saves you money in the long run. If you classify incorrectly, you could end up facing a lawsuit or investigation for not just unpaid overtime, but fines and damages.

And it’s often not just one employee you would have to pay back wages to. If the state starts an investigation, it will likely include all employees.

A concept called “double liquidated damages” may also apply, which means an employee gets double the amount they would be owed in back pay.

It can be a big financial hit, as well as a reputational one. Someone at the company will likely take the fall for the impropriety.

Even if the company goes out of business, the employer could be held personally liable, putting their personal assets in danger.

How we can help

I say this all the time — we’re not the payroll police. But as a local New York company, we are well-versed on the numerous and complex New York state and local employment laws. Unlike the national payroll companies, we have specialized knowledge in New York.

We will tell you if we notice you’re doing something wrong, so you can decide what changes, if any, may be best for you and your business to take to avoid financial danger.

We can help you figure out the best way to classify your employees and write job descriptions that clearly detail the work they do.

The dangers can be great. And one way to avoid this kind of pitfall is straightforward and financially painless.

We can reverse-engineer your payroll expenses to ensure that you’re still paying an employee the same amount per week, but that they are properly classified. Their pay statement may change to show regular and overtime hours, with regular and overtime pay, but the total amount of pay is the same as when you were paying them as a salary. You are just displaying it differently on your employee’s pay statement to comply with the employment laws.

You can make your numbers work while ensuring you’re following the laws on overtime and exempt vs. non-exempt employee classification. You will sleep better at night knowing there are no surprises or potential financial knockout punches looming over your head.