California Hourly Wage and Effect on "Exempt Employees"

On January 1, 2016, California’s minimum wage increased to $10.00 per hour.

California’s overtime laws require employers to compensate “non-exempt” employees who work in excess of eight hours in one workday or in excess of 40 hours in one workweek, at a rate of either one and one-half or two times the regular rate of pay, depending on the amount of excess time worked. Exempt status is determined, in substantial part, by whether an employee earns a monthly salary of at least two times the state minimum wage of $10.00 per hour. The minimum wage increase, therefore, now sets a higher compensation threshold that employees must meet to reach exempt status. As of January 1, 2016 an employee must earn at least $20.00/hr. to be considered for exempt status. Of course if an employee meets all the criteria for exempt status the employee is not eligible for over time.

Criteria for exempt status for private sector employees are set forth by California’s Labor Code and by the Industrial Welfare Commission.

Importantly, however, while employees must be paid minimum wage pursuant to local ordinances, exempt status for employees is based on California’s state mandated minimum wage. The requirement of Labor Code section 515.8 requires a monthly salary of “two times the state minimum wage for full-time employment.” In other words, section 515.8 does not look to local minimum wage in determining exempt status. This is important to remember where a business is located in a county where the required minimum wage is in excess of $10.00/hour.  San Francisco and Los Angeles are two such counties.

In light of the raise in the minimum wage, employers should review the compensation schedules of their employees to ensure compliance with state and local minimum wage requirements. Businesses should confirm that all employees are being compensated at a minimum rate of at least $10.00 per hour for all hours worked. Employers should also review the annual compensation for their exempt employees and ensure that the company meets the new requirement of being compensated at an annual rate of at least $41,600 per year. If an employee's compensation does not meet this threshold, then he or she will not be eligible for “exempt” status and must be paid over time.

Jacobs & Dodds
2151 Michelson Drive
Ste. 266
Irvine, CA 92612
(949) 645-7300

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