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Implications of Minimum Wage Hike in California for Employers & Employees

In 2016, more than 1.2 million workers in California could reap the benefits of the change in the minimum wage law governing the state. The new law makes it necessary for employers to comply with the $10/hour minimum wage rate, effective from January 1st, 2016, and entitles any employee who’s paid less than the said amount to file a lawsuit against his/her employer.

This law furthers California’s reputation as a state with worker-friendly legislation and also puts employers on their heels in terms of their responsibility to comply with the updated law.

The Question of ‘Who’s Exempt, and Who isn’t?’

In California’s workplace compensation regulation environment, the Industrial Welfare Commission (IWC) has a key role to play. The IWC regulates work hours, wages, work conditions, and formulates wage orders for different industries to define as to which employees can be treated as ‘exempt’. An exempt employee is earns a fixed salary independent of how many hours he/she works.

The implications for employers – they don’t need to remunerate such employees in terms of any overtime compensation, nor are they liable to provide any rest or meal breaks or adhere to any other wage requirements for these employees.

Some Numbers to Bring Clarity

As per wage orders applicable in California, an employee must earn twice the state’s minimum wage to qualify as an exempt employee. Now, with the minimum wage figures changing, the criteria for employers to treat certain employees under administrative, executive, or professional exemption also change. From the 1st of January, 2016, the minimum salary levels for employees in California have increased to $970 per week, which calculates to $41,600. Any employee earning less than this amount will fall out of the exempt category, making them eligible for overtime remuneration.

State versus Federal Law

Here’s another aspect that makes the change in the minimum wages law even more complicated for employers to comprehend. The proposed federal salary threshold to define the line between exempt and non-exempt employees is $50,440.

This means that despite of the increase in minimum wages in California, employees in the state could still be non-exempt under the Fair Labor Standards Act (FLSA), and will hence continue to qualify for overtime wages as per federal minimum salary threshold. In case of any contradictions or overlaps between the local and federal laws, employers in California are required to comply with laws that favor the employee.

This means that in 2016

  • Employees earning less than $41,600 annually will be eligible for overtime payments under California law.
  • Employees earning more than $41,600 but less than $50,440 annually will also qualify for weekly overtime payments because of being nonexempt as per federal minimum wage levels.
  • Employees earning more than $50,440 will be exempt, and hence, employers will not have to pay overtime to them.

This year could spell tough times for employers in California, with a slew of workplace, workforce, and wage laws being updated.  These wage laws have taken effect already, if you have not seen your wages reflect the new laws, call Makarem & Associates at 310-312-0299 or email info@makaremlaw.com. We can answer all the tough questions related to the new minimum wage laws.