Minimum Wage, Tipped and Exempt Employee Pay in 2020: A Rates-Only Update

Minimum wage laws can affect businesses of all sizes, whether operating nationwide, in multiple jurisdictions, or only in one state, county, or city. To help manage this challenge, below we provide a rates-only update that details scheduled state- and local-level wage increases throughout 2020 so employers can determine the minimum amount they must pay non-exempt, tipped, and certain exempt employees.

Because pending or future legislation might change minimum wage rates that will apply in 2020, we recommend employers follow developments via our monthly article, WPI Wage Watch: Minimum Wage, Tip, and Overtime Developments, and consult with counsel to confirm rates did not change since publication.

2020 Minimum Wage Wage Increases¹

Please note the New York rates may also increase on December 31, 2020. However, for this article we focus on the New York rates that will apply every day in 2020 except December 31, 2020.

2020 Tipped Rate Increases

In certain places, employers may be able to count tips an employee receives toward the minimum wage. In these jurisdictions, if the direct wage an employer pays an employee and tips equals the minimum wage, an employer satisfies its minimum wage obligation. However, if the direct wage plus tips does not equal the minimum wage, an employer must pay the employee the difference. Directly below we highlight the minimum cash wage (MCW) that may be paid, and the maximum tip credit (TC) employers can claim, for covered tipped employees, as well as the amount of the increase. Please note that in the following states with 2020 rate increases, tip credits are prohibited (so they are not included below): Alaska; California; Minnesota; Montana; Nevada; Oregon; and Washington State. Finally, because New York has varying standards, we include the numbers in a standalone section after the below chart.

New York Tip Rates

Tipped employee standards can be more complicated in New York, so we give the Empire State its own section. First, we discuss generally applicable tip standards, then standards that apply in the hospitality industry, which vary depending on an employee’s role and the place of employment.

Note that some New York rates will also increase on December 31, 2020. However, for this article we focus on the New York rates that will apply in every day in 2020 except December 31, 2020.

Generally: If an employee’s weekly tip average is less than the Low amount, employers cannot claim a tip credit. If an employee’s weekly tip average is between the Low (L) and High (H) amounts, the tip credit cannot exceed the Low amount. If an employee’s weekly tip average equals or exceeds the High amount, the tip credit cannot exceed the High amount.

Hospitality Industry

Service Employee: An employer must directly pay a service employee at least the hourly Cash Wage (CW), and cannot claim a tip credit that exceeds the hourly Tip Credit rate (TC). However, an employer’s ability to claim the tip credit is dependent on an employee’s weekly tip average equaling at least the hourly Tip Threshold (TT) (or TT(R) for resort hotel service employees) and an employee’s direct wage plus tips equaling or exceeding the minimum wage.

Food Service Worker: A food service worker must receive a wage of at least the hourly Cash Wage (CW), and a tip credit cannot exceed the below-specified hourly rate (TC) provided the total of tips received plus the wages equals or exceeds the hourly total minimum wage rate (MW). Employers cannot claim a tip credit for fast food employees.

Exempt Employees

Notwithstanding the 2020 increase concerning the minimum amount²² employers must pay executive, administrative, and professional employees for these workers to be exempt from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime requirements, currently at least five states have pay requirements that will (or can) exceed the revised federal standard: Alaska, California, Colorado (Executive or Supervisor), Maine, and New York State (Executive or Administrative).²³ Additionally, Pennsylvania and Washington State have proposals that will exceed the FLSA rate, and Michigan's governor has directed the state labor department to increase the minimum amount employers must pay these employees. It remains possible other states will join this list.

Under some state laws, the aforementioned categories of employees are exempt only from overtime requirements, meaning employers must pay them at least the state minimum wage for all hours worked, and many of these state minimum wage rates will increase in 2020. Additionally, in 2020, there will be state law increases in the minimum hourly pay required to qualify for the state-law equivalent of the FLSA’s 7(i) retail or service establishment overtime exemption for employees paid commissions. Below we discuss these pay-related 2020 changes.

Executive, Administrative, or Professional Exemption Minimum Pay Increases

Under the FLSA, to be a bona fide executive, administrative, or professional employee, employer must compensate the individual on a salary or fee basis (only for administrative and professional employees) at a specific rate per week, excluding board, lodging, or other facilities. On January 1, 2020, this minimum salary or fee will increase from $455 to $684 per week. Employers may translate the $684 a week amount into equivalent amounts for periods longer than one week: $1,368 (Bi-weekly); $1,482 (Semi-monthly); $2,964 (Monthly); $35,568 (Annual). Various states' minimum salary or fee amounts exceed the federal rate, and in 2020, these pay requirements will change.

Note that the New York rates may also increase on December 31, 2020. However, for this article we focus on the New York rates that will apply every day in 2020 except December 31, 2020.

Additionally, California law provides that certain computer software employees, as well as licensed physicians and surgeons, are exempt from state overtime requirements if they receive a minimum hourly, monthly, or yearly rate, which is determined annually based on cost-of-living changes. Effective January 1, 2020, the computer software employee minimum hourly rate will increase from $45.41 to $46.55 per hour, the minimum monthly salary amount will increase from $7,883.62 to $8,080.71, and the minimum annual salary amount will increase from $94,603.25 to $96,968.33. For licensed physicians and surgeons, the minimum hourly rate of pay will increase from $82.72 to $84.79.

White Collar Employees Covered by Minimum Wage

In various states, executive, administrative, or professional employees are exempt from state overtime requirements, but not exempt from state minimum wage requirements. In these jurisdictions, such employees must earn at least the applicable minimum wage for each hour worked in a workweek. The minimum wage in some of these states will increase on January 1, 2020:²⁹ Arizona ($12.00); Illinois ($9.25); Massachusetts ($12.75); New Jersey ($11.00 under the general rate; $10.30 for small or seasonal employers); and South Dakota ($9.10). Moreover, on July 1, 2020, the Illinois minimum wage will further increase to $10.00 per hour, and the Nevada minimum wage will increase to $9.00 or $8.00 per hour, depending on whether an employer offers health benefits. Note that in two aforementioned states – Arizona and Illinois – local minimum wage rates may apply (see above).

Commissioned Employee Overtime Exemption

To qualify under the FLSA’s 7(i) overtime exception, the regular rate of pay for an employee of a retail or service establishment must exceed one-and-a-half times the federal minimum wage, and more than half the employee’s compensation for a representative period (not less than one month) must represent commissions on goods or services. In the following states with 2020 rate changes, the 7(i)-type exemption requires – in part – an employee’s pay to either equal or exceed one-and-a-half times the state minimum wage.³⁰

California: An employee’s earnings must exceed one-and-a-half times the state minimum wage, which on January 1, 2020, will increase to $13.00 per hour for employers with 26 or more employees and to $12.00 per hour for employees with 25 or fewer employees.

Colorado: An employee’s regular rate of pay must be at least one-and-a-half times the state minimum wage, which on January 1, 2020, will increase to $12.00 per hour.

Connecticut: An employee's regular rate of pay must exceed two times the state minimum wage, which on September 1, 2020, will increase to $12.00 per hour.

District of Columbia: An employee’s regular rate of pay must exceed one-and-a-half times the district minimum wage, which on July 1, 2020, will increase to $15.00 per hour.

Minnesota: An employee’s regular rate of pay must exceed one-and-a-half times the state minimum wage, which on January 1, 2020, will increase to $10.00 per hour for employers with $500,000 in annual gross sales, and to $8.15 per hour for employers with less than $500,000 in annual gross sales, and certain hotels.

Nevada: An employee’s regular rate must exceed one-and-a-half times the state minimum wage, which on July 1, 2020, will increase to $9.00 per hour if an employer does not offer health benefits or $8.00 per hour if an employer offers health benefits.

New York: The general wage order³¹ provides – in part – that employers must pay an employee for overtime at a wage rate of one-and-one-half times the employee's regular rate in the manner and methods provided in and subject to the exemptions of section 7 of the FLSA. However, it is unclear whether employers must base payment on the federal or state minimum wage. If the state minimum wage, the wage rate will increase on December 31, 2019. In New York City, the minimum wage applicable to employers with 11 or more employees will remain $15.00 and the rate for employers with 10 or fewer employees will increase to $15.00. The minimum wage in Nassau, Suffolk, and Westchester Counties will increase to $13.00. Finally, in the remainder of New York State, the minimum wage will increase to $11.80. Please note the New York rates may also increase on December 31, 2020.

Oregon: An employee’s regular rate of pay must exceed one-and-a-half times the state minimum wage, which on July 1, 2020, will increase to $13.25 per hour (urban), $12.00 per hour (general), and $11.50 per hour (non-urban).

Washington: An employee’s regular rate of pay must exceed one-and-a-half times the state minimum wage, which on January 1, 2020, will increase to $13.50 per hour.