Most employers know that California requires them to pay every employee at least $10 per hour. Did you realize that an increase in minimum wage requires an increase in salary for exempt managers? If not, listen up.
Exempt white collar employees must meet certain criteria to be considered exempt. Probably the most important is the minimum salary level. Exempt employees must make two times the minimum wage in a theoretical 40-hour work week. Forty hours per week equals 2080 hours per year (52 weeks x 40 hours). That means the minimum salary an exempt employee must make is $41,600 (2 x $10 x 2080 hours). Thus, California requires all managers to make at least $41,600 to be an exempt employee. Of course, that is also the minimum salary for all other white collar exemptions, unless a particular exemption has a different minimum wage requirement. For instance, an exempt computer professional must be paid at least $41.85 per hour or at least an $87,185.14 salary per year. Each year the computer professional wage rates increase according to the yearly percentage increase in the California Consumer Price Index.
I believe that the minimum salary level is the most important criteria to meet for exempt employees because it is the easiest criteria to challenge in a misclassification case. If a manager is not paid the minimum salary, then that manager simply is not exempt. If that manager later brings a lawsuit for unpaid overtime, then the employer will lose and will owe back wages, assuming the manager actually worked overtime hours. Most of the other exemption criteria are not as clearly discernable.
Misclassification cases often create class action liability if enough managers or other exempt employees do not receive the minimum salary. In both individual claims and class action claims, the prevailing employees are entitled to attorney’s fees.
Employers, I highly recommend that all the managers that you want to classify as exempt make at least $41,600 per year. Employees, if you are exempt, make sure that you are making the minimum salary. Local wage laws that have higher minimum wage requirements also increase minimum salaries for exempt employees. Los Angeles, for instance, will have a minimum wage rate of $10.50 per hour starting on July 1, 2016. The corresponding minimum salary will be $43,680 (2 x $10.50 x 2080 hours).
I am available to consult with anyone who has a question about the required minimum salary or other exempt employee requirements. Call me at (858) 292-0792.