Are You Sure Your Salaried Employees Are Exempt?

The California minimum wage increased to $10 per hour as of January 1, 2016.

This increase required California employers to pay more to keep exempt workers exempt. California employers who classify workers as salaried exempt must meet the Duties Test (that the employees’ duties fall within a statutory category that permits them to be exempt from the Minimum Wage law) and the Salary Test. The Salary Test requires the employee’s salary to equal or exceed double the minimum wage for full time work.

A full-time minimum wage earner now makes $20,800 per year (or more depending upon local county and city specific ordinances that require a minimum wage higher than $10 per hour). For example, the minimum wage in San Francisco, Oakland, and Emeryville presently is $12.25 and in Palo Alto it is $11.00. Thus, a salaried exempt worker not subject to a local ordinance that raises the minimum wage must be paid at least $41,600 annually ($10 per hour x 40 hours per week x 52 weeks per year, doubled).

If an employer fails to pay a salaried employee this standard the employee will be considered misclassified as exempt and will be required to pay the employee overtime wages. For example, a misclassified employee who works an extra 45 minutes a day, at $40,000 a year, would accrue an overtime liability of $5,625 per year. Employees have the ability to recover back wages for four years under California’s statute of limitations, so the amount would be $22,500 over four years, for just one worker. Imagine a staff of 45 misclassified employees and the employer’s liability exceeds seven figures.

If you are uncertain whether a salaried employee qualifies as exempt check with your legal counsel and get the numbers right so you don’t potentially fate a large liability for misclassification of an employee.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.