Employment Law Alert: Exempt & Non-Exempt California Pay Requirements Effective January 1, 2017

As discussed in our recent seminars, a variety of exempt and non-exempt minimum pay standards in California will increase on January 1, 2017.

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, 2017, based upon an increase in the California Consumer Price Index. Effective January 1, 2017, the minimum salary for an exempt computer software professional will increase from $87,185.14 to $88,231.36 per year (from $7,265.43 to $7,352.62 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, 2017, California raised the minimum hourly rate for exempt computer software professionals from $41.85 to $42.35.  (Note:  Due to a revision in the relevant consumer price index, the new figures for 2017 are slightly lower than those presented in our recent wage and hour seminar series).

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).

Minimum Wage Increases 

Effective January 1, 2017, California’s minimum wage will increase to $10.50 per hour (for employers with 26 or more employees) and the minimum wage in the City of San Diego will increase to $11.50 per hour. Effective July 1, 2017, the minimum wage in the City and County of San Francisco will increase to $14 per hour and the minimum wage in the City of Los Angeles will increase to $12 per hour (for employers with 26 or more employees). Numerous other cities throughout California have also enacted ordinances with increasing minimum wages in 2017. 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 the “white collar” exemptions (administrative, executive, and professional) will increase from $41,600 to $43,680 as of January 1, 2017 (for employers with 26 or more employees).  This minimum salary is set at two time 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.

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.