2020 is the Year for Salary Increases, But Who Should Make the Decision?

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It appears that at least some employers will be raising pay in 2020 to retain valuable workers, according to the Talent Retention Survey recently published by the Employers Association of New Jersey (EANJ).

As New Jersey’s unemployment rate fell to a record low last month – 3.5 percent – the Survey reports that many employers are concerned about employees leaving for other jobs.

Their primary strategy to retain valued employees? Raise pay.

“Most employers say they are willing to raise wages to retain experienced employees, mostly managers and technicians. Others are considering promotions and bonuses,” says John Sarno, president of EANJ.

But many of these same employees may benefit from an automatic raise in salary.

On January 1, the salary threshold under the Fair Labor Standards Act will increase from the current $23,660 to $35,568 per year (or from $455 to $684 per week).

Its estimated that over 130,000 full-time salaried employees would get a raise, mostly in the restaurant, hospitality and retail sectors.

Managers at many retail stores and fast food restaurants making as little as $24,000 have are not eligible for overtime, even when they work 60 or 70 hours a week.

Setting eligibility standards for overtime pay dates back more than 80 years to the adoption of the federal Fair Labor Standards Act in 1938. Under that law, which has been updated several times, an exemption exists for certain salaried employees whose responsibilities and duties can be deemed managerial or professional.

In 2016, the U.S. Department of Labor, under the Obama Administration, attempted to increase the overtime threshold to $47,476 per year for white-collar salaried workers and tie future automatic increases to the cost of living.  However, a federal judge in Texas blocked the Labor Department from enforcing the higher threshold after it was challenged in court by a coalition of Republican-controlled states and business groups.

In response, the Labor Department under the Trump Administration established a $35,568 threshold starting in January 2020.

“It’s a fairly arbitrary number but it literally splits the difference” says Sarno.  “And I wonder whether small businesses are even aware of the increase.”

But even as salaries are certain to go up either by government edict or by market forces, some still think that the salary threshold is not high enough in New Jersey, a high cost of living state.

New Jersey Policy Perspective, a Trenton-based think tank, has called on Gov. Phil Murphy to raise the salary threshold to $78,000 in New Jersey by 2024.

This level would give thousands of managers and skilled technicians a significant raise

The governor’s office has directed the New Jersey Department of Labor and Workforce Development to assess the request, something that Sarno believes the department has already been considering.

In September, 2018 EANJ reported that the department was in the process of a “thorough review” of the exemptions from overtime pay under state law relative to analogous provisions under Federal law.

N.J. wage and hour law adopts federal law by reference. State law cannot have a lower salary level than the federal standard but can always have a higher one

Employers will consider their options, says Sarno.

Raising the salary level does not require that newly overtime eligible employees be converted to hourly pay status.  Employers, including local government, have discretion to choose between several options:  

  • Raise salaries: For workers whose salaries are close to the new threshold and who would otherwise be exempt from overtime pay under the duties test, employers may choose to raise these workers’ salaries to meet the new threshold and maintain their exempt status.
  • Pay overtime above a salary: Employers can continue to pay newly-eligible employees their existing salary, and in addition, pay these employees for overtime hours.
  • Evaluate and realign employee workload: Employers can limit the need for employees to work overtime by ensuring that workloads are distributed to reduce overtime, that staffing levels are appropriate for the workload, and that workers are managing their time well.
  • Utilize “comp” time: Government employers - unlike private sector employers - can provide compensatory time off - or “comp time” - rather than cash overtime payments in appropriate circumstances.