New Exempt & Non-Exempt Pay Requirements
October 24, 2013
A variety of minimum pay standards in California will increase soon.
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, 2014, based upon an increase in the California Consumer Price Index. Effective January 1, 2014, the minimum salary for an exempt computer software professional will increase from $83,132.93 to $84,130.53 per year (from $6,927.75 to $7,010.88 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, 2014, California raised the minimum hourly rate for exempt computer software professionals from $39.90 to $40.38.
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 requirements for exempt status are substantial: the positions would be deemed non-exempt, and the employer would be liable for overtime back pay (and other amounts).
Non-Exempt Minimum Wage & Other Minimum Exempt Salaries
California Governor Jerry Brown recently signed Assembly Bill 10, which will increase the non-exempt minimum wage from $8.00/hour to $9.00/hour effective July 1, 2014, and to $10.00/hour effective January 1, 2016. The law requires employers to pay at least minimum wage for all time that employees are required or allowed to work. In addition, the law requires California employers to pay non-exempt employees one and one-half times their regular rate of pay for: (1) hours worked in excess of forty in one workweek; (2) hours worked in excess of eight in one day; and, (3) the first eight hours worked on the seventh consecutive day of work in any one workweek. Also, the law requires California employers to pay non-exempt employees two times their regular rate of pay for: (1) hours worked in excess of twelve in one day; and, (2) hours worked in excess of eight hours on the seventh consecutive day of work in a workweek.
These non-exempt minimum wage increases also raise California’s minimum salary for positions classified as “exempt” under one of the general “white collar” overtime exemptions (i.e., administrative, executive, and professional), which is set at at two times the minimum wage for full-time employment. The current minimum weekly salary for the general white collar exemptions is currently $33,280 per year or $2,773.34 per month. Effective July 1, 2014, this minimum salary will increase to $37,440/year or $3,120/month. Effective January 1, 2016, this minimum salary will increase to $41,600/year or $3,467/month. Importantly, in order to maintain exempt status, the employee’s full salary generally must be paid for each week in which the employee performs any work (with some narrow exceptions, such as when the employee misses an entire day of work for personal reasons other than sickness, accident, or disability).
In addition to meeting the minimum salary requirement, employers must be able to demonstrate that a position meets the duties tests associated with one or more of the white collar exemptions to maintain exempt status. Unlike federal law, California law strictly requires that exempt employees spend more than half of their working time every workweek performing exempt work.
San Jose & San Francisco Minimum Wage Increases
In addition to the increase in the California state minimum wage, the minimum wage in the City of San Jose will increase from $10.00 to $10.15 per hour effective January 1, 2014. Also effective January 1, 2014, the minimum wage in the City and County of San Francisco will increase from $10.55 to $10.74 per hour. The cities of Los Angeles and San Diego have not passed ordinances to increase the minimum wage above California’s state-wide requirements.
A wide range of penalties apply to wage violations under California law, and wage lawsuits are frequently filed against employers of all sizes. We recommend that all employers regularly review their wage practices to ensure compliance and minimize the risk of claims. To protect against common mistakes that can lead to litigation, 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.”
Employers seeking further guidance on any of these issues may contact any of the firm’s lawyers listed below.