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Notice To Employers – Audit Your Compensation Plans Based On The Increase To California’s Statutory Minimum Wage

Posted in New Legislation and Regulations, Wage & Hour

By: Lizbeth V. West, Esq.

On September 25, 2013 Governor Brown signed Assembly Bill 10 into law. Under the new law the statutory minimum wage for California employees will increase from $8 per hour to $9 per hour as of July 1, 2014. Then, on January 1, 2016, the statutory minimum wage will increase to $10 per hour.

Employers should audit and adjust their compensation plans not only for non-exempt employees that they pay minimum wage, but also any exempt employees whose compensation is tied in some fashion to California’s minimum wage. For example:

1.    Any exempt employee under the executive, administrative, or professional (“white collar”) exemptions recognized under California law. In addition to other requirements, these employees must earn a salary that is no less than 2x the state minimum wage for a full-time (40 hours per week) employee. Currently, such employees are required to earn no less than $2,733.33 per month or $33,280 per year. With the increase in minimum wage to $9.00 per hour on July 1, 2014, the employee would be required to earn no less than $3,120 per month or $37,440 per year. Then, on January 1, 2016, those numbers would increase to $3,466.66 per month and $41,600 per year.

2.    Any employees classified under the “inside sales exception” to overtime recognized under Wage Orders 4 and 7. On a weekly basis, these employees must earn more than 1½ x the state minimum wage and must earn at least 50% of their compensation in the form of commissions. Therefore, in order to meet the first requirement under this exception, as of July 1, 2014, the employee must earn more than $13.50 per hour ($13.51+), and as of January 1, 2016, the employee must earn more than $15.00 per hour (15.01+).

3.    Any other compensation plan or agreement in which an employer has structured an employee’s compensation to include a reference or calculation based upon California’s statutory minimum wage.

Employers that are required to increase a non-exempt employee’s pay based on the new law must also remember to comply with Labor Code section 2810.5, which requires that employees receive written notice of any changes in their compensation within seven (7) calendar days of the change. Notice must be provided by a separate writing unless the change in compensation is clearly reflected in a timely wage statement (e.g. paystub) furnished pursuant to Labor Code section 226.

Feel free to contact one of Weintraub Tobin’s Labor and Employment attorneys for more information or assistance in auditing existing compensation plans.