Exempt and Non-Exempt California Employees Affected by Increase in California’s Minimum Wage

On July 1, 2014, California raised its minimum wage from $8/hour to $9/hour. Both non-exempt and exempt salaried employees will be affected. An additional increase to $10/hour will take effect on January 1, 2016. Some employers view the change as inconsequential as they already have to meet local minimum wage requirements for their non-exempt employees, but there will in fact be a noticeable impact because the change applies to exempt status employees and commissioned inside sales employees.

To understand the potential changes the increase in minimum wage could have for exempt employees you must first consider the requirements for the exempt status. In order to be classified as exempt, an employee must meet certain requirements regarding the type of work they are performing. In addition, they must meet the minimum salary test. California law requires that all employees classified as exempt earn a monthly salary that is at least twice the minimum required by the state for a full time employee (working 40 hours per week). ) Prior to the increase in California’s minimum wage, this left the minimum monthly salary for a full time, exempt employee at $33,280. The change that took effect on July 1, 2014 bumps it up to $37,440. By 2016, this number will be even higher, bringing exempt employees’ minimum salary to $41,600 per year in order to meet the minimum salary test. 

In regard to commissioned inside sales employees, the new California minimum wage applies to overtime pay. California law dictates that an inside salesperson is exempt from overtime pay if they earn more than 1.5 times the state minimum wage and more than half of their income is commission pay. After July 1, 2014, an inside sales person must earn at least $13.51 per hour in order to be exempt from overtime pay. With the arrival of 2016, these employees will need to be making at least $15.01 per hour in order to retain exempt status.

Employers who disregard of delay the necessary adjustment of applicable employee pay rates and exemption statuses could face costly penalties and interest on back pay due employees, possible overtime premium pay (as a result of the loss of exempt status for some workers) and more. If you have questions regarding how the change to minimum wage law may apply to you, get in touch with Blumenthal, Nordrehaug & Bhowmik today.