Employment Law Alert: Increased California Pay Requirements Effective January 1, 2018

A variety of exempt and non-exempt minimum pay standards in California will increase on January 1, 2018.

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 had a special, heightened minimum salary requirement for the last several years.

The California Department of Industrial Relations has announced that the minimum pay requirements for exempt computer software professionals will increase effective January 1, 2018, based upon an increase in the California Consumer Price Index. Effective January 1, 2018, the minimum salary for an exempt computer software professional will increase from $88,231.36 to $90,790.07 per year (from $7,352.62 to $7,565.85 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, 2018, California is raising the minimum hourly rate for exempt computer software professionals from $42.35 to $43.58.

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 professionals, 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 for up to four years (and other amounts).

Minimum Wage Increases (Non-Exempt Employees)

Effective January 1, 2018, California’s minimum wage (applicable to non-exempt employees) will increase to $11.00 per hour for employers with 26 or more employees, and to $10.50 per hour for employers with 25 or fewer employees. Numerous other cities throughout California have also enacted ordinances with increasing minimum wages in 2018. Employers should check with counsel to confirm pay requirements in all locations where employees work.

Minimum Salary for “White Collar” Exemptions

Based upon the increase to the California minimum wage, the minimum salary for exempt “white collar” employees (i.e., those covered by the administrative, executive, and/or professional exemptions) as of January 1, 2018 will increase to $45,760 for employers with 26 or more employees, and to $43,680 for employers with 25 or fewer employees. The minimum salary is set at two times the California state minimum wage for full-time employment. As noted above, there is a special (and much higher) minimum salary requirement for exempt computer software professionals. In addition to the minimum salary requirement for the white collar exemptions, strict job duties tests must also be satisfied. In our experience, employers make by far more misclassification mistakes due to misapplication of the job duties tests.

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.

 

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