[California] 2020 Minimum Wage Increase Impacts Exempt And Nonexempt Employees

From January 1 2020, new changes to California’s minimum wage laws have come into effect, JD Supra summarises the amendments to state and local law for employers awareness.

California State Minimum Wage

On January 1, 2020, California’s statewide minimum wage increased to $13 per hour for employers with 26 or more employees and to $12 per hour for employers with 25 or fewer employees.

This increase brings California closer to its goal of a minimum wage of $15 per hour. 

In 2016, California enacted legislation for gradual increases in the minimum wage until 2023. The state’s minimum wage will continue to rise each year until it reaches $15.00 per hour.

The applicable minimum wage is determined by whether the employer has more than 25 employees or employs 25 or fewer.

California Local Minimum Wage Laws 2020

As well as the statewide minimum wage increase, many cities and counties have enacted their own minimum wage ordinances exceeding state wage requirements. If a local minimum wage rate is better for employees than the state minimum wage rate, employers must comply with the local law.

2020 California Salary Increases for Exempt Employees

To qualify as exempt employees, California requires that workers:

  • Perform exempt duties for more than 50 per cent of their work time and that;
  • Exempt executive, administrative, and professional employees earn a salary of no less than twice the state minimum wage for full-time employment. 

The minimum annual salary is based on the current state minimum wage and calculated as follows: minimum wage x 2 x 2080 hours

From January 1, 2020, the minimum salary threshold for these exemptions is:

  • $54,080 per year (or $1,040 per week) for employers of 26 or more employees
  • $49,920 per year (or $960 per week) for employers of 25 or fewer employees

The increase to California’s minimum wage will have an additional impact on commissioned inside salespeople. Under California law, commissioned inside salespeople are exempted from the state’s overtime laws should the employee earn more than 1.5 times the state minimum wage and more than half of the employee’s compensation represents commission earnings.

Because of this commissioned inside salespeople will need to earn above $19.50 per hour (for a company with 26 or more employees) or $18.00 per hour (in the case of 1-25 employees) to maintain their exempt status.

Essential Information

Employers should make sure they are complying with state and local minimum wage laws. If a local minimum wage rate exceeds the state minimum wage rate, employers must comply with the local rate.

Employers should review compensation levels for exempt employees to ensure that the applicable salary threshold has been met. If the salary threshold is not satisfied, the employer should decide whether to increase compensation to meet the salary threshold or to reclassify the employee as nonexempt.