Rising Minimum Guaranteed Salary Requirements

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Both the federal government and the State of Colorado have recently raised the minimum amount required to be paid to salaried workers who are considered “exempt” or ineligible for overtime payments. 

Changes at Issue

The federal increase of $23,660 to $35,568 became effective January 1, 2020, and applies to all employers governed by the federal Fair Labor Standards Act (“FLSA”) across the country. 

Colorado’s increased salary requirements go into effect on March 16, 2020, and will initially be the same as the new federal level. However, Colorado’s rule changes include a series of additional raises through January 1, 2024, which will eventually take Colorado’s salary threshold to $55,000. (Between 2020 and 2024, the threshold raises between $4,500 and $5,000 each year.) Colorado’s requirements apply only to work performed within Colorado. 

Colorado’s regulatory changes also significantly expanded the employers that are governed by the increased minimum salary requirement. Previously, only four industries were covered by Colorado Minimum Wage Order #35: (1) retail & service, (2) commercial support service, (3) food & beverage, and (4) health & medical. Colorado Overtime and Minimum Pay Standards Order (“COMPS Order”) #36 replaces Order #35 and applies to all Colorado employers unless specifically exempted. Generally speaking, the only exempted employers are public employers: the State of Colorado and its agencies or entities; counties; cities and counties; municipal Corporations; quasi-municipal corporations; school districts; and irrigation, reservoir, or drainage conservation companies or districts organized and existing under the laws of Colorado.

Action Steps for Employers

Employees must be paid in a manner that complies with both federal law and the state in which the work is performed. From a practical standpoint, that means that federal wage and hour laws set a floor for employee wage payments, but states like Colorado can enact laws that increase the minimum wage, increase opportunities for overtime earnings, change the minimum salary level for exempt employees, etc. These differences can surprise employers when they work in different states or hire an employee who comes from a state with different wage and hour laws.

The recent changes are a good reminder that employers need to:

  1. Evaluate current salaried positions for compliance with federal and state laws in all states where employees are performing work. In addition to ensuring that salary payments meet the minimum requirements, this is a good time to consider whether other requirements for the “white collar” exemptions are being met. For example, to qualify for the “executive” exemption at the federal level, in addition to meeting the minimum salary level, the “employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent.” (A number of other requirements also apply.) As years pass, the responsibilities associated with a given job may change. Positions that were previously supervising three to four workers year-round may now only supervise that many workers during the summer months or “construction season.” If all requirements for one of the white collar exemptions are not met, the worker must be treated as non-exempt and paid overtime if required.
  2. Consider whether your company can afford to pay the new, higher salary level in order to comply with the white collar exemption requirements moving forward. From a business and financial standpoint, employers need to evaluate whether they are able to pay the higher salaries required to maintain the exemptions. Particularly in states like Colorado where the minimum salary requirement is set to increase by almost $20,000 over the next four years, some employers may find that it is not feasible to increase salaries at that rate. In that case, employers will need to consider whether it is more cost efficient to change certain job positions to non-exempt and pay the overtime rate when required due to the number of hours worked by the employee in that position. As a reminder, it is generally impermissible to shift “back and forth” between exempt and non-exempt status, so once a decision is made, an employer may find it difficult to change back quickly.
  3. Don’t forget the humans (a.k.a. your employees). These types of legal changes can lead to difficult interactions between employers and employees. Increased salary requirements are often touted as wins for employees, and many workers do benefit. However, these changes also have large impacts on businesses’ budgets and can lead to changes in business operations. For example, salaried workers may be changed to hourly employees or positions may be cut due to the inability to pay the higher salary requirements for a given job. Workers who are moved to hourly or non-exempt status may find that their income now varies from pay period to pay period, which can be difficult for many families to adapt to. Other employees may feel that they were demoted when moved from salaried status to an hourly position. Additionally, some workers may not like having to track their hours worked and feel like they’re being micro-managed after many years in a salaried position where hours weren’t required to be tracked. 

    Making changes like these to your business operations need to be handled delicately to limit unwanted employee turnover or angst. For employers concerned about the impact of these changes on their business and their employees, there may be legal considerations that can help mitigate the negative impact on both the employer and the employees. If you would like help in evaluating your company’s options, please reach out to our Woods Aitken Labor and Employment Team.

Side Note on Vacation Policies

In June 2019, the Colorado Court of Appeals upheld an employer’s written policy of not paying accrued vacation to employees who were either terminated or failed to give two weeks’ notice. This decision was contrary to the informal guidance that had previously been issued and enforced by the Colorado Department of Labor and Employment (CDLE). On December 12, 2019, the CDLE swung the pendulum back by issuing amendments to its Wage Protection Act Rules. The new rules require payment of accrued vacation at termination. Notably, in issuing the rule, the CDLE takes issue with the June 2019 appellate decision and argues that it is contrary to prior caselaw and Colorado Supreme Court precedent. This is yet another situation that emphasizes the need to understand differences in wage & hour laws between different states.

If you have any questions on this topic or need assistance, please contact our Labor & Employment Law Practice Group. We encourage you to subscribe to our Labor & Employment E-Briefs to get the latest HR news, tips, and updates.