California’s New Overtime Exempt Minimum Increases to $41,600 and Minimum Wage Set to Increase to $15 per Hour

Many of our business clients are still adjusting to the new California minimum wage, which increased to $10.00 per hour as of January 1, 2016. This state-wide increase has also resulted in a surge in the annual amount California employees must earn to satisfy the “salary test”—the first of two prongs in the test to determine whether an hourly employee is exempt from applicable overtime laws–to $41,600 annually. If both prongs of the test are met, then the employee may be paid a flat salary, without overtime pay. For information on the various exempt classifications which set out the requirements for the second prong of thetest, called the “duties test”, click here.

Failure to pay overtime pay to an employee who does not qualify as exempt can be costly, even if the employee works just an hour of overtime per day. Say an employer mistakenly misclassifies an hourly worker as exempt from overtime.If that misclassified employee works just an extra 60 minutes per day at $40,000 a year, he or shewill accrue an overtime amount due of $7,500 per year. Given that California law permits employees to reach back four years under the applicable statute of limitations, an employer’s liability for just one misclassified employee could reach $30,000 over four years for this one hypothetical worker.

If the same mistake is repeated for other employees, an employer could face a potentially devastating judgment against them for overtime pay owed, not to mention the costs of defending such a claim. The applicable statutes provide for a recovery of attorneys’ fees and costs from an employer if an employee prevails on an overtime claim, which: a) provides ample incentive for employees and attorneys to pursue such claims, resulting in a proliferation of such claims against employers; and, b) significantly heightens the exposure of employers to liability.

Minimum Wage Increases Yet to Come

As one of our employment law attorneys discussed in a previous article titled, Economic Justice or Economic Devastation: What Does the Proposed Minimum Wage Hike to $15 an Hour Mean to Your Business?, a recent bill signed into law by California Governor Jerry Brown will continue to raise the state minimum wage until it reaches $15 per hour. The potential cost to employers for misclassifying a worker makes it imperative that employers remain informed as to any corresponding increases to the “salary test” amount for determining exemption from overtime pay as the minimum wage rate continues to escalate under this law.

The additional increases to the minimum wage for employers who employ 26 or more employees are:

1. On January 1, 2017, the minimum wage will increase to $10.50 per hour.
2. On January 1, 2018, the minimum wage will increase to $11 per hour.
3. On January 1, 2019, the minimum wage will increase to $12 per hour.
4. On January 1, 2020, the minimum wage will increase to $13 per hour.
5. On January 1, 2021, the minimum wage will increase to $14 per hour.
6. On January 1, 2022, the minimum wage will increase to $15 per hour.

There is a short respite for employers with fewer than 26 employees; the scheduled increases are delayed at each step by one year for such employers.[1]

Conclusion

Given that overtime claims have continued to proliferate, it is critical for business owners of all sizes to ensure they are compliant with applicable overtime laws. Whether you are an employer or an employee, the attorneys at Gehres Law Group have the knowledge and experience to assist in protecting your employment law interests. Contact us for a complementary evaluation to discuss how we can help, or browse our website for more information.

[1] This article does not discuss minimum wage laws applicable to public employers, which must abide by a more complex set of rules than private employers.

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