New York Enacts Increases to State Minimum Wage

Pursuant to legislation signed by New York Governor Kathy Hochul, New York’s minimum wage will gradually increase through 2026 to $17/hour in New York City, Long Island, and Westchester County and $16/hour for the remainder of New York State. Beginning in 2027, annual minimum wage increases will be tied to inflation.

Governor Hochul signed on May 3, 2023 state budget legislation that will incrementally increase the minimum wage statewide. As with the current state minimum wages, the minimum wage will differ depending on whether an employee is employed in one of two regions: (a) “downstate” New York, consisting of New York City (New York, Kings, Queens, Bronx, and Richmond counties), Long Island (Nassau and Suffolk counties), or Westchester County; or (b) the remainder of New York State. The minimum wage will increase as follows:

Starting January 1, 2027, the state minimum wage rates will (1) be set annually by the New York State Department of Labor (NYS DOL) and (2) be published no later than October 1 of each year, with the new rate to take effect on January 1 of the following year. Pursuant to the new law, annual increases will be tied to inflation, as measured by the consumer price index for the Northeast Region Urban Wage Earners and Clerical Workers (CPI-W).

Importantly, there will be no increase in any year where (a) the CPI-W for the preceding year is negative; (b) the state unemployment rate increases by half a percentage point from its low during the preceding year; or (c) total non-farm state employment (measured seasonably) decreases over the last six months.

Notably, the law does not set changes to other applicable rates and credits set annually by the NYS DOL through regulations known as “wage orders”—for example, the state salary basis for executive and administrative overtime exemptions, uniform maintenance allowances, and meal and lodging credits.

Instead, the law provides that the amounts set by a wage order shall increase in the same proportion as the applicable minimum wage increases. For example, the salary basis threshold is historically set at 75 times the hourly minimum wage per week. If that holds true, the salary basis threshold for the executive and administrative exemptions will increase as follows:

Recommendations for Employers

First, employers should begin reviewing their employee rosters to identify hourly employees who will be affected by the law and prepare to update their payrolls. As the effect of the increases could be significant for employers with nonexempt hourly workers, employers should review and consider appropriate updates to their budgets as necessary.

Second, in light of the likely forthcoming increases to the salary threshold for the executive and administrative exceptions, employers should identify and evaluate positions compensated below the new thresholds.

For those employees, businesses may want to consider whether to reclassify such employees as eligible for overtime under state and/or federal law (which sets a salary basis threshold lower than that set by New York State) or raise their salaries to comport with the higher thresholds for overtime-exempt employees in New York.

Employers may also want to consider the hours worked for these employees to estimate the potential cost of paying overtime if they were to reclassify exempt employees as nonexempt on a going-forward basis.

For those employees who will be reclassified as overtime eligible, employers should prepare talking points for managers and employees about the change, the reason for the change, and how the change will impact their compensation and/or benefits, as applicable. Employers should also consider developing clear time-reporting policies for reclassified workers who will not be accustomed to recording hours worked.

To the extent that reclassified employees previously were receiving bonuses, commissions, or other incentive compensation, employers should reevaluate those forms of compensation or carefully consider how to factor them into the regular rate of any newly classified hourly workers. Employers should also be prepared to follow up and audit timekeeping practices for newly reclassified employees to ensure that they are following proper processes and procedures.

Law clerk Alanna Fichtel contributed to this LawFlash.