Most California employers are well aware that California’s minimum wage for non-exempt employees will increase from $8 per hour to $9 per hour on July 1, 2014, and to $10 per hour on January 1, 2016.   Many employers in San Jose and San Francisco think that the state wide increase will be a non-event because they already have to comply with local minimum wage ordinances for their non-exempt employees that are in excess of California’s upcoming minimum wage increases.  However, increases in California’s minimum wage are very significant because they also impact the minimum salary for exempt status employees, and commissioned inside sales employees.

In order to be classified as an exempt employee the employee must meet certain requirements with regard to the type of work that they are doing but they also must meet a minimum salary test.  California law requires that in order to be classified as exempt, an employee must earn a monthly salary which is twice the state minimum for a full time employee (40 hours per week).  Currently the minimum salary for a full time, exempt employee is $33,280 per year.  This will increase on July 1, 2014 to a minimum exempt salary of $37,440 per year.  By 2016, employees will need to earn at least $41,600 per year to meet the minimum salary test for exempt status.

State minimum wage law will also impact the pay of commissioned inside sales employees.  Under California law, an inside salesperson will be exempt from overtime pay if they earn more than 1.5 times the state minimum wage  and more than half their income comes from commission.  This means that in order to be exempt from overtime pay after July 1, 2014 an inside sales person must earn at least $13.51 per hour, and starting on January 1, 2016 an inside sales person must earn at least $15.01 per hour.

We recommend that now is the time for employers to review the pay that their exempt status and commissioned inside sales employees earn in order to comply with the minimum wage increases soon to be in effect.  Adjusting these employees’ pay proactively will help prevent the cost of penalties and interest on back pay, possible overtime premium pay due to the loss of exempt status by some employees, and litigation costs.

If you have any questions about this article or employment law matters, please contact Valerie Menager, at vmenager@carr-mcclellan.com or (650) 342-9600.