Ringing in the New Year: Higher Wages to Trigger Exemption Changes in Some States


 

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Minimum-wage increases that are to take effect in one-third of states by Jan. 1, 2018, would trigger in several states additional wage-related changes, such as adjustments to income withholding or statutory exemptions and to the executive and professional overtime-exemption thresholds.

News of pending state minimum-wage changes may be well known to employers, but news of related wage changes may not be as well known. Nonetheless, employers should be aware of these changes to ensure they do not start 2018 subject to enforcement actions.

Eighteen states have wage changes that are to take effect by Jan. 1:  Alaska, Arizona, California, Colorado, Florida, Hawaii, Maine, Michigan, Minnesota, Missouri, Montana, New Jersey, New York, Ohio, Rhode Island, South Dakota, Vermont, and Washington. Several of these use the state minimum wage to calculate statutory exemptions from withholding and executive, professional overtime exemption thresholds. So, when the states’ minimum wages change, so too do these calculations.

Garnishment Exemption Amounts to Rise

Essentially, statutory exemptions from withholdings reduce the amount that may be garnished. Under federal law, a worker’s minimum disposable earnings must be 30 times the federal minimum wage ($7.25 an hour, $217.50 a week) before a garnishment may be deducted. Some states multiply the federal minimum wage by more than 30 hours, using 35, 40, or 50 hours instead. 

Other states substitute the state minimum wage or a fixed amount for the federal minimum wage in their calculations, which is allowable if the result is equal to or greater than 30 times the federal minimum wage. 

In states that use the state minimum wage to calculate statutory exemptions from withholdings, such as California, Colorado, Maine, and New York, employers must ensure their calculations reflect the new minimum wage by the first pay day that occurs on or after the adjustment. 

California’s statutory exemption from garnishment is 40 times the state minimum wage. So, when California’s minimum wage rises on Jan. 1, 2018, to $11 or $10.50, depending on whether the employer has at least 26 employees or fewer than 26 employees, respectively, the statutory exemption for creditor garnishments is to rise to $440 and $420, from $420 and $400, respectively.

In Colorado, the garnishment exemption amount is 30 times the state or federal minimum wage, depending on whichever is greater. With the minimum wage increase to $10.20 from $9.30 on Jan. 1, the statutory exemption for garnishments is to rise to $306 from $279.  

In Maine, the amount exempt from garnishment is 40 times the state or federal minimum wage, depending on which is greater. When the state’s minimum wage rises to $10 from $9 on Jan. 1, 2018, , the statutory exemption is to rise to $400 from $360.

New York requires an exemption of 30 times the state or the federal minimum wage, so the state’s Dec. 31, 2017, minimum wage increase is to be accompanied by a statutory exemption increase that varies according to the different minimum wages that are to take effect. For New York City employers with at least 11 employees, it is to be $390, based on a $13 minimum wage. For New York City employers with fewer than 11 employees it is to be $360, based on a $12 minimum wage. For employers in Nassau, Suffolk, and Westchester counties, it is to be $330, based on an $11 minimum wage. For employers in the rest of the state, it is to be $312, based on a $10.40 minimum wage.

Changes to Executive, Professional Overtime Exemptions

To be considered a bona fide executive, administrative, or professional employee, under the Fair Labor Standards Act, workers must be compensated on a salary or fee basis at a rate of not less than $455 (week), $985.83 (semimonthly), $1,971.66 (monthly), $23,660 (annually), excluding board, lodging, or other facilities. In some states, the minimum salary or fee amount exceeds the federal rate, and in 2018, pay requirements for these employees will change.

In Alaska, executive, administrative, and professional employees must earn at least twice the state’s minimum wage per 40-hour work week, excluding employer-furnished board or lodging, to be exempt from overtime.

So, after Alaska’s minimum wage rises Jan. 1 to $9.84 from $9.80, this amount may be translated into compensation increases to $787.20 from $784 (weekly); to $1,574.40 from $1,568 (biweekly); to $1,705.60 from $1,698.67 (semi-monthly); to $3,411.20 from $3,397.34 (monthly); and to $40,934.40 from $40,768 (annually).

California’s salary threshold to qualify as an overtime-exempt executive, administrative, or professional employee is twice the minimum wage for weekly full-time employment of more than 40 hours. 

On Jan. 1, 2018, when California’s minimum wage rises, the minimum salary threshold for overtime-exempt employees is to rise for employers having at least 26 employees to $880 from $840 (weekly); to $1,760 from $1,680 (biweekly); to $1,906.67 from $1,820 (semimonthly); to $3,813.34 from $3,640 (monthly); and to $45,760 from $43,680 (annually). For employers having  no more than 25 employees, the threshold changes to $840 from $800 (weekly); to $1,680 from $1,600 (biweekly); to $1,820 from $1,733.34 (semimonthly); to $3,640 from $3,466.67 (monthly); and to $43,680 from $41,600 (annually).

Also effective Jan. 1, California's computer-software employees are to be exempt from overtime requirements in California if in 2018 they earn at least $43.58 an hour, $7,565.85 a month, or $90,790.07 a year, and licensed physicians and surgeons are exempt if they earn at least $79.39 an hour.          

In Colorado, executive or supervisory salaried employees are exempt if they earn a salary in excess of the minimum wage for all hours worked in a workweek. The administrative and professional exemptions only require that employees be salaried. When the state’s hourly wage increases on Jan. 1 to $10.20, the exemption amount for those working 40 hours is a salary that exceeds $408 (weekly), $816 (biweekly), $884 (semimonthly), $1,768 (monthly), and $21,216 (annually).

In Maine, an employee’s regular compensation, when converted to an annual rate, must exceed 3,000 times the state minimum wage or the annualized FLSA amount ($23,660), whichever is higher.  Currently, the higher amount is 3,000 times the state minimum wage. In 2018, the exemption threshold is to be compensation that exceeds $576.92 (weekly), $1,153.84 (biweekly), $1,250 (semimonthly), $2,500 (monthly), and $30,000 (annually).

In New York, executive or administrative employees must be paid a salary for services, including board, lodging, or other allowances and facilities. The professional exemption does not include a salary requirement. Different rates apply for the executive and administrative exemptions.

From Dec. 31, 2017, through Dec. 30, 2018, the exemption amount that applies for New York City employers of at least 11 employees is annually to be $50,700, monthly is to be $4,225, semimonthly is to be $2,112.50, biweekly is to be $1,950, and weekly is to be $975. The exemption amount that applies for New York City employers of no more than 10 employees is annually to be $46,800, monthly is to be $3,900, semimonthly is to be  $1,950, biweekly is to be $1,800, and weekly is to be $900. The exemption amount that applies for employers in Nassau, Suffolk, and Westchester counties is annually to be $42,900, monthly is to be $3,575, semimonthly is to be $1,787.50, biweekly is to be $1,650, and weekly is to be $825. The exemption amount that applies in the remainder of the state is annually to be $40,560, monthly is to be $3,380, semimonthly is to be $1,690, biweekly is to be $1,560, and weekly is to be $780.

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