What's a guaranteed salary exemption?
Currently, the law excludes certain employees from the protection of the minimum wage and overtime law in Hawaii (Chapter 387, HRS). One of the exemptions is when the employer pays their employee a guaranteed salary of $2,000 a month See section 387-1, definition of "employee" (1). For other exemptions see section 387-1, HRS definition of "employee" paragraphs(2) through (14). Paying a guaranteed salary of at least $2,000 per month, would technically allow an employer to have an employee work without limits and without a requirement for overtime.
Who does it apply to?
Not all employers and employees are subject to Chapter 387, HRS in its entirety. Hawaii Wage and Hour Law is generally considered a "gap" group protection for minimum wage and overtime for those that are not covered under the federal Fair Labor Standards Act (FLSA). See the definition of "employee" paragraph (12). An employee is covered under FLSA for minimum wage and overtime if their employer makes more than $500,000 a year or is involved in interstate commerce (see 27 USC 203). What paragraph (12) also provides is that if Hawaii has a higher minimum wage rate or a higher standard of overtime, then all Hawaii employees, even those protected by FLSA, are required to get at least minimum wage and overtime protection from Chapter 387, HRS. So now that our minimum wage has increased to $7.75 and the federal minimum wage is $7.25, the Hawaii minimum wage rate applies to all, not just small businesses. So paragraph (12) operates to keep the higher minimum wage rate and most favorable overtime rates, either State or Federal, enforceable, but generally exempts those subject to FLSA from the application of Chapter 387, HRS.
This means that generally large businesses may not use the guaranteed salary exemption because those large businesses are more likely governed by the FLSA, not Hawaii Wage and Hour Law and the FLSA does not recognize the guaranteed salary exemption. The guaranteed salary exemption is available only for those small entities that don't rise to the level of FLSA jurisdiction.
Why do we need to increase the guaranteed salary exemption?
A guaranteed salary exemption is a good thing and can also be a dangerous thing. It's good in that it allows a small business to be able to regulate their overtime expenses by guaranteeing a certain level of salary to their employees without a concern to the number of hours worked in a week. The dangerous thing is that when it doesn't keep up with the minimum wage, the guaranteed salary exemption doesn't protect the very workers it is designed to safeguard.
The $2,000 figure was established in 2002 when the minimum wage was $5.75 and Act 43, Regular Session of 2002 changed the guaranteed salary exemption from $1,250 to $2,000. The $2,000 would have covered approximately 168 hours of work a month at minimum wage and about 72 hours of overtime a month. The current formula provides for a minimum of 168 hours of work a month at minimum wage and 72 hours of overtime in a month as well.
With minimum wage set to go up to $10.10 by 2018, this measure aims to track the increases in minimum wage with the guaranteed salary exemption formula. The formula would increase the guaranteed salary exemption to $2,139 on July 1, 2015, $2,346 on January 1, 2016, $2,553 on January 1, 2017 and $2,787.60 on January 1, 2018.
What's next?
SB1122 was passed out of the Senate Judiciary and Labor Committee on Tuesday February 17, 2015 and is now headed to the Senate Ways and Means Committee. No hearing date is set as yet.
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