Employment Law Alert: 2016 Exempt & Non-Exempt Pay Requirements

On January 1, 2016, California’s minimum pay requirements for exempt and non-exempt employees will increase.

Exempt Software Professionals

In order to treat software professionals as exempt from overtime, California employers generally need to meet the requirements of the “computer software professional” exemption. The term “software professionals” covers positions such as software engineers, programmers, developers, analysts, and others classified as exempt based upon their software-development-related work. This exemption has a higher minimum salary requirement than the general “white collar exemptions” (discussed below).

The California Department of Industrial Relations has announced that the minimum pay requirements for exempt computer software professionals will increase effective January 1, 2016, based upon an increase in the California Consumer Price Index. Effective January 1, 2016, the minimum salary for an exempt computer software professional will increase from $85,981.40 to $87,185.14 per year (from $7,165.12 to $7,265.43 per month). California’s computer software professional exemption is one of the few overtime exemptions that also permits exempt status with pay on an hourly basis. Also effective January 1, 2016, California raised the minimum hourly rate for exempt computer software professionals from $41.27 to $41.85.

Importantly, employers must satisfy not only the pay requirements, but also strict tests regarding the employee’s duties in order to classify employees as exempt computer software professionals. For example, regardless of pay level, the exemption does not apply to entry-level software industry positions, or to an employee who has “not attained the level of skill and expertise necessary to work independently and without close supervision.” The consequences of failure to satisfy either the compensation or duties requirement for exempt status are substantial: the positions affected would be deemed non-exempt, and the employer would be liable for overtime back pay (and other amounts).

Non-Exempt Minimum Wage & General Exempt Salary Requirement

California’s state law minimum wage for non-exempt employees will increase from $9.00 to $10.00 per hour on January 1, 2016. This triggers an increase in the exempt salary requirement for exempt employees under the general “white collar exemptions” (i.e., administrative, executive, and professional exemptions), which is two times the minimum wage for full-time employment. The new salary requirement for the white collar exemptions will increase from $37,440 to $41,600 per year (from $3,120.00 to $3,466.67 per month).

Proposed federal regulations may further increase the minimum exempt salary to $50,440 per year for the white collar exemptions. Watch for final passage of these regulations within the next several months.

Please note that many California cities require higher minimum wages for non-exempt employees, including Berkeley, Emeryville, Los Angeles (starting July 1, 2016), Oakland, San Francisco, San Jose, and Sunnyvale. Employers must ensure compliance with all local laws where employees work. Federal contractors are required to pay non-exempt employees a minimum wage of $10.10.

Recommendations

We recommend that employers regularly review their wage practices to ensure legal compliance. We believe it is particularly important for employers to work with legal counsel to confirm the propriety of “exempt” status classifications, and classification of workers as “contractors,” to avoid common compliance mistakes with respect to such classifications.