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By Anne McWilliams

In struggling to stay current on rapidly changing workplace rules and regulations in the midst of this pandemic, essential business operators need to address yet another new reality:  there is a good chance an employee will test positive for COVID-19, or has been exposed to someone suspected or confirmed with COVID-19. The CDC has issued guidance on these subjects. Below are checklists and recaps of good workplace safety practices, based on the CDC guidelines. Check your local government requirements that may supersede the CDC guidelines, like the new City of Los Angeles Worker Protection Order. This summary is based on current information, and the subject matter is developing and changing as this public health crisis unfolds.

What If An Employee Tests Positive For COVID-19

  • Immediately upon notice of a confirmed case, separate the employee from other employees and send the employee home, or instruct the employee to remain at home.
  • Notify all employees of their possible exposure to COVID-19 and instruct them about how to proceed based on the CDC Public Health Recommendations for Community-Related Exposure. We recommend that you notify other employees in writing.
  • Maintain strict confidentiality of the infected employee’s name, symptoms and diagnosis, to ensure compliance with medical information privacy or disability discrimination laws.
  • Ask the infected employee who else he or she has come in contact with or worked in close proximity to (within a few feet) through or at work during the previous 14 days.
  • These employees may or may not be required to be sent home (based on the below 4/8/20 CDC guidelines). Speak with these employees on an individual basis and ask about their symptoms (fever, cough, shortness of breath, acute respiratory conditions), and take their temperature. Maintain confidentiality of all information disclosed to you by the employees.
  • Close the premises for cleaning and disinfecting pursuant to the guidelines of the CDC. The CDC recommends waiting 24 hours, if feasible, before cleaning and disinfecting.
  • After re-opening, regularly clean and disinfect high-touch surfaces and shared workplace areas, equipment and furniture, and maintain restrooms in a clean and sanitary condition, with sufficient supplies for good hand hygiene.
  • Take employees temperatures before they start their shift, and one additional time during their shift. This is paid time. Treat information on temperatures as confidential.
  • Provide employees with cloth-based covers and require employees to wear the covers over their mouth and nose at all times while working or on the work premises.
  • Employees who are observed to have acute respiratory illness symptoms should be sent home immediately. Reporting time pay may be triggered. Keep this information private.
  • Employees who feel sick or have symptoms of COVID-19 should be actively encouraged to go home. Reporting time pay may be triggered. Keep this information private.
  • Encourage employees to report symptoms of COVID-19. Do not disclose this information.
  • Implement protocols for employees to wash their hands with soap every 30 minutes, and require employees to wash their hands for at least 20 seconds with soap after blowing their nose, coughing, or sneezing and after using the restroom. This is paid time on the clock.
  • Implement a policy of physical distancing, as much as feasible given your operations, and find ways to create physical space to minimize close contact as much as possible.
  • Train employees and cleaning staff in conformity with the CDC guidelines, and maintain sufficient CDC-approved disinfecting supplies.
  • Educate and train employees on good hand hygiene, and regularly post or circulate information on how employees can reduce the spread of COVID-19.
  • Any customer or visitor to the work premises must wear cloth-based covers over their mouths and face before entering the premises.

When an employee potentially contracts COVID-19 in the workplace, there is a potential workers’ compensation claim. Contact legal counsel if an employee claims he or she was infected on the job and files a workers’ compensation claim. COVID-19 is a recordable illness if the worker is infected on the job. If there is evidence that the employee contracted the virus in the workplace, contact legal counsel regarding possible OSHA reporting obligations.

What If An Employee Had Exposure to Someone With Confirmed or Suspected COVID-19?

On April 8, 2020, the CDC issued new guidance on employees who may have been exposed to COVID-19, focusing on implementing precautionary measures in the workplace, rather than sending employees home for self-isolation, as was the practice previously. A potential exposure is either through contact with a household member with COVID-19, or having come within 6 feet of someone who has a confirmed or suspected case. The time frame for an employee’s contact with an individual includes the period of time of 48 hours before the individual became symptomatic.

The CDC advises that as long as the employee has no symptoms he or she should remain at work and adhere to the following practices prior to and during their work shift:

  • Pre-Screen: Employers should measure the employee’s temperature and assess symptoms prior to them starting work. Ideally, temperature checks should happen before the individual enters the facility.
  • Regular Monitoring: As long as the employee doesn’t have a temperature or symptoms, they should self-monitor under the supervision of their employer’s occupational health program.
  • Wear a Mask: The employee should wear a face mask at all times while in the workplace for 14 days after last exposure. Employers can issue facemasks or can approve employees’ supplied cloth face coverings in the event of shortages.
  • Social Distance: The employee should maintain 6 feet and practice social distancing as work duties permit in the workplace.
  • Disinfect and Clean work spaces: Clean and disinfect all areas such as offices, bathrooms, common areas, shared electronic equipment routinely.

If an employee becomes sick during the day, they should be sent home immediately. Surfaces in their workspace should be cleaned and disinfected. Prepare a list of persons who had contact with the ill employee during the time the employee had symptoms and 2 days prior to symptoms. Others at the facility with close contact within 6 feet of the employee during this time would be considered exposed.

Other Considerations:

  • Employees should not share headsets or other objects that are near mouth or nose.
  • Employers should increase the frequency of cleaning commonly touched surfaces.
  • Employees and employers should consider pilot testing the use of face masks to ensure they do not interfere with work assignments.
  • Employers should work with facility maintenance staff to increase air exchanges in room.
  • Employees should physically distance when they take breaks together. Stagger breaks and don’t congregate in the break room, and don’t share food or utensils.
  • Provide disposable wipes, gloves, no-touch disposal trash cans and hand sanitizer for use by employees.

If employers opt to require employees to use face coverings, the employer should bear that cost, or alternatively reimburse the employee their cost. The CDC guidance does not mention gloves. Based on your business operations, it may be prudent to consider implementing a protocol that requires employees to wear gloves while performing their job duties and educate the employees on best practices on how to use and dispose of gloves.

Educate and train employees on good hand hygiene and how they can reduce the spread of COVID-19:

  • Post the CDC printable flyer in the workplace: https://www.cdc.gov/coronavirus/2019-ncov/downloads/Essential-Critical-Workers_Dos-and-Donts.pdf
  • Post, circulate or email information advising any or all of the following:
    • Hand hygiene.
    • Cough and sneeze etiquette: cover your mouth and nose with a tissue when you cough or sneeze or use the inside of your elbow. Throw used tissues in the trash and immediately wash hands with soap and water for at least 20 seconds. If soap and water are not available, use hand sanitizer containing at least 60% alcohol.
    • Avoid close contact with sick persons.
    • Avoid touching eyes, nose, and mouth with unwashed hands.
    • Avoid sharing personal items with co-workers (i.e. dishes, cups, utensils, towels).
    • Avoid using other employees’ phones, desks, offices, or other work tools and equipment, when possible. If necessary, clean and disinfect them before and after use.
    • Follow the policies and procedures of your employer related to illness, cleaning and disinfecting, and work meetings and travel.
    • Stay home if you are sick, except to get medical care.
    • Inform your supervisor if you have a sick family member at home with COVID-19.
    • Clean AND disinfect frequently touched objects and surfaces such as workstations, keyboards, telephones, handrails, and doorknobs. Dirty surfaces can be cleaned with soap and water prior to disinfection.
    • Practice social distancing.

Update: On June 16, 2020, the California Department of Public Health published a checklist for California employers to respond to COVID-19 in the workplace (available here).  Employers should review this checklist and any other state and local requirements that may apply to their business.

With attention on the DOL’s salary increase required to meet the white collar exemptions, it is important for employers to remember that this is only one-half of the test to qualify for as an exempt employee.  The law also requires that the employee perform more than 50% of their time performing exempt duties.  For this week’s Friday’s Five, here are five examples of duties that qualify as exempt duties for the administrative exemption (click here for a description of some of the different exemptions that exist):

1.      Insurance claims adjusters

Insurance claim adjusters whose duties include activities such as interviewing insureds, witnesses and physicians; inspecting property damage; reviewing factual information to prepare damage estimates; evaluating and making recommendations regarding coverage of claims; determining liability and total value of a claim; negotiating settlements; and making recommendations regarding litigation.

2.      Financial services industry employees

Employees in the financial services industry whose duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing or promoting the employer’s financial products.

3.      Executive assistants

An executive assistant or administrative assistant to a business owner or senior executive of a large business generally meets the duties requirements for the administrative exemption if such employee, without specific instructions or prescribed procedures, has been delegated authority regarding matters of significance.

4.      Human resource managers

Human resources managers who formulate, interpret or implement employment policies and management consultants who study the operations of a business and propose changes in organization generally meet the duties requirements for the administrative exemption.

5.      Purchasing agents

Purchasing agents with authority to bind the company on significant purchases generally meet the duties requirements for the administrative exemption even if they must consult with top management officials when making a purchase commitment for raw materials in excess of the contemplated plant needs.

6.      (bonus) Property managers

In McKee v. CBF Corp. C.A. 5 (Tex) the court held that under the Fair Labor Standards Act (FLSA), that a “property manager” was an exempt employee under the administrative exception when her duties including overseeing the employer’s properties, ensuring they were properly maintained.  She also supervised five maintenance employees, approving their schedules and vacation time.  In addition, the property manager had employees reporting to her, as managers would generate a list of issues to be addressed on a daily basis.  She would decide which of these issues would be handled by outside contractors and tasking her employees to individual assignments.

Employers must be careful about this analysis, as California law can differ from federal law.  Therefore, experienced counsel should be consulted when conducting an audit regarding whether an employee is properly classified as an exempt employee.

To qualify as an exempt employee, an employee must be “primarily engaged in the duties that meet the test of the exemption” and “earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” Labor Code section 515.  This forms the two part test the employees must meet to be exempt: (1) the salary basis test and (2) the duties test.  Yes, this Friday’s Five post is published on a Saturday, but a holiday party obligation got in the way (it did cross my mind, but I saved my readers from the obligatory “how to throw a holiday work party and avoid litigation” article – so I figured this will make up for the late post).  Here are five general issues employers should know about the salary basis test:

1.     To qualify for a “white collar” exemption, employees must be paid at least twice the state minimum wage.

To be exempt from the requirement of having to pay overtime to the employee, the employee must perform specified duties in a particular manner and be paid “a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” (Lab. Code, § 515, subd. (a).)  As of July 1, 2014, the minimum wage in California increased from $8.00 to $9.00 per hour.  It is set to increase again to $10.00 per hour on January 1, 2016.  With the increase in the state minimum wage, there is a corresponding raise in the minimum salary required to qualify as exempt under the “white collar” exemptions.  Therefore, on July 1, 2014, in order to qualify for a white collar exemption, the employee must receive an annual salary of at least $37,440, and as of January 1, 2016, the threshold annual salary increases to at least $41,600.  This salary basis will increase with each increase in the California state minimum wage.

2.     DOL proposal to increase the salary for required to meet the salary basis test under the FLSA is just a proposal (for now).

As I have previously written, the Department of Labor announced in June 2015 that it was considering a proposal to increase the salary basis amount under the Fair Labor Standards Act (FLSA) for the white collar exemptions from $23,660 to $50,400.  The Wall Street Journal is reporting that this proposal is not likely to become effective (if at all) until late 2016.  Employers need to understand that the DOL’s proposal pertains to federal law.  California employers need to abide by which ever salary basis level is higher – California state law or the FLSA.  It is important to understand the difference, and keep up to date on the DOL’s proposal in 2016.

3.     The employee’s salary cannot be reduced for quality or quantity of work.

In a recent case, Negri v. Koning & Associates (2013), an insurance claims adjuster challenged his employer’s exempt classification of his job.  The plaintiff was paid $29 per hour with no minimum guarantee, and when he worked more than 40 hours in a week, he still only received $29 per hour.  The employer attempted to argue that the plaintiff was an exempt employee under the administrative exemption.  The court rejected the employer’s position in holding that because the employee did not receive a guaranteed amount in “salary”, the employee did not meet the salary basis test to qualify as exempt.  In determining what constitutes a salary, the court looked to federal law:

An employee is paid on a “salary basis” if the employee “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. Subject to the exceptions provided in paragraph (b) of this section [(relating to absences from work)], an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked. Exempt employees need not be paid for any workweek in which they perform no work. An employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.” (29 C.F.R. § 541.602(a) (2012)

Therefore, because the plaintiff’s pay varied according to the amount of time he worked, and was not guaranteed a base amount, he did not meet the salary basis test and was found to be non-exempt.

4.     If misclassified, the employee is entitled to unpaid overtime.

For all non-exempt employees, overtime is owed at a rate of one and one-half times the employee’s regular rate of pay for all hours worked in excess of eight hours up to and including 12 hours in any workday, and for the first eight hours worked on the seventh consecutive day of work in a workweek.  Double the employee’s regular rate of pay is owed for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek.  California’s Department of Industrial Relations FAQ on California overtime provides a good overview of the overtime requirements under California law.  In addition to the unpaid overtime that is owed to misclassified employees, employers also fact substantial penalties that accrue as a result of the employee not being paid all wages when earned.

5.     Approach with caution.

California courts have made clear that the employer bears the burden of proof when asserting that an employee is an exempt employee.  “[T]he assertion of an exemption from the overtime laws is considered to be an affirmative defense, and therefore the employer bears the burden of proving the employee’s exemption.”  Ramirez v. Yosemite Water Co. (1999).

Photo:  Justin Lynham

California’s Department of Finance provided a letter to Governor Newsom as required under Labor Code section 1182.12 to reflect the adjustment in the state minimum wage each year.  The Department announced that California’s minimum wage will increase by 3.5% to $16.00 per hour for all employers as of January 1, 2024. This Friday’s five reviews how the increase impacts California’s employers:

1. White Collar Exemptions – Salary Requirement Tied to State Minimum Wage

California’s employment laws classify employees into two main categories: exempt employees and nonexempt employees. Federal and state laws exempt certain employees from wage and hour requirements. An exempt employee is an individual who is exempt from any overtime pay or minimum wage requirements. The “white collar” exemptions are: Professional, Executive and Administrative. To qualify as an exempt employee, the employer bears the burden to meet the requirements of a two-part test the employees must meet to be exempt: (1) the salary basis test and (2) the duties test. The salary basis test requires that the employee must be paid a salary that is at least two times the state minimum wage, which will increase as California’s minimum wage increases.

With the increase to the California minimum wage on January 1, 2024, the minimum annual salary to meet the white-collar exemption increases to $66,560 per year, and $5,546.67 per month (increasing from $64,480 per year in 2023).  For more information on exempt employee classifications, see our prior article here.

2. Computer Professional Exemption Salary Requirement Increases in 2024

Labor Code section 515.5 sets forth that certain computer software employees are exempt from overtime requirements under the Labor Code. One aspect to meet this exemption is a minimum salary.  For 2023, California’s Department of Industrial Relations adjusted the computer software employee’s minimum hourly rate of pay exemption from $50.00 to $53.80, the minimum monthly salary exemption from $8,679.16 to $9,338.78, and the minimum annual salary exemption from $104,149.81 to $112,065.20 effective January 1, 2023.  The DIR will be announcing the increase for computer professionals in October 2023. 

3. Local Minimum Wage Ordinances

There are over 35 local minimum wage ordinances throughout California.  Employers are required to comply with the higher of the state or local minimum wage that applies to them.  Many of the local minimum wage rates increase on July 1 of each year, but there still are some that have a January 1 increase date.  Employers must carefully review all applicable local minimum wage (and paid sick leave) requirements.

4. Industry Specific Minimum Wages

  • Hotel Workers:

In addition to state and local minimum wage rate, some localities also have industry specific rates. The employers should always check their local ordinances that might apply to their workforce/industry. There are some cities that apply specific rates for hotel workers. For example, the City of Long Beach and the City of West Hollywood have adopted ordinances requiring a higher minimum wage for these workers.

  • FAST Act – Fast Food Workers:

As we have written about on this blog, on September 5, 2022, California Governor Gavin Newsom signed into law AB 257, termed the Fast Food Accountability and Standards Recovery Act or FAST Recovery Act.  The law proposes to establish a Fast Food Sector Council to regulate California’s fast food restaurants and set the minimum wage rate, among other workplace regulations, for the fast food industry. However, the law has been challenged and a coalition, the Save Local Restaurants Coalition, submitted over one million signatures on December 5, 2022, in opposition to the FAST Act and now the bill will be on the November 2024 ballot as a referendum for California voters to decide the fate of the law.

5. Planning For Minimum Wage Increases

As employers start to prepare for 2024, some best practices for ensuring compliance with all minimum wage requirements include:

  • Review all exempt employee classifications and specifically list which exemption they qualify for and ensure they are paid the statutorily required salary.
  • Develop a chart listing all nonexempt employees by location and ensure compliance with the location where the employee is working.
  • Audit your payroll processing company to ensure they are updating the minimum wage and salary payments to employees. Do not rely on your payroll company to know or understand the minimum wage requirements here in California.

Finally, there is an initiative that qualified for the November 2024 ballot that would increase California’s minimum wage to $18 per hour and then increase each year based on the cost of living.  Employers will need to continue to monitor this initiative in 2024.

California law starts from a presumption that all employees are non-exempt employees, meaning that they are not exempt from the Labor Code requirements, such as overtime pay, meal and rest breaks, and minimum wage. Exempt employees are designated as such because they are “exempt” from certain wage and hour requirements due to their duties and pay. However, the employer bears the burden when classifying an employee as exempt, and simply providing a title to an employee does not make them exempt.

This week, the U.S. Supreme Court issued a decision in Helix Energy Solutions Group, Inc. v. Hewitt that examined the issue of the “salary basis” test under federal law.  As explained below, because California does look to federal law when interpreting its wage and hour laws, the decision needs to be understood by California employers and is a good reminder of the heightened requirements California employers have to meet the exemption requirements under California law. 

1. Overview of federal and California white-collar exemptions

The Fair Labor Standards Act (FLSA) exempts employees employed as in an executive, administrative, or professional capacity (these exemptions are often referred to as the white-collar exemptions).  The Department of Labor issued regulations that set forth the requirements for employees to meet these exemptions, generally looking to (1) the employee’s duties, (2) how much the employee is paid, and (3) how the employee is paid, such as by salary, wage, commission, or bonus.

Likewise, California law recognizes certain exempt categories (including the executive, administrative, and professional) of employees for purposes of overtime and other wage and hour requirements.  California Labor Code section 515 and California’s Wage Orders set forth the requirements for exempt employees in California.  It is important to note that while California and federal law are similar in some regards, and sometimes California looks to federal law when interpreting its own laws, there are significant differences that employers must be aware of for any exempt analysis under California law. 

2. California looks to federal law when interpreting its Wage Orders

The federal Fair Labor Standards Act of 1938 (29 U.S.C. § 201 et seq.) applies a “salary basis test” to determine whether employees who are classified by their employers as “salaried,” and therefore exempt from minimum wage and overtime requirements, are in fact properly subject to exemption. California state law must meet or exceed standards adopted under federal law, and California follows the federal salary basis test to a substantial degree. See Kettenring v. Los Angeles United School Dist. (2008). 

In Negri v. Koning & Associates, a California Court of Appeals explained that the “Division of Labor Standards Enforcement (DLSE) construes the IWC wage order to incorporate the federal salary-basis test for purposes of demining whether an employee is exempt or nonexempt.” (referring to DLSE Opinion Letter No. 2002.03.01 (Mar. 1, 2002).  The Court in Negri acknowledged that while the DLSE opinion letters are not controlling, they are instructive on the wage orders, and therefore look to federal law on the definition of “salary.” 

3. Salary basis test under the FLSA

At issue in Helix Energy Solutions Group, Inc. v. Hewitt, was whether the employee was paid on a salary basis.  Plaintiff worked as a “tool-pusher” for Helix Energy Solutions Group on an offshore oil rig.  He would work 12 hours a day, seven days a week, for a 28-day “hitch.”  Then he would have 28 days off.  Helix paid plaintiff on a daily-rate basis, which started at $963 per day and increased to $1,341 per day, which amounted to more than $200,000 on an annual basis.  Plaintiff claimed that because he was paid on a daily basis, he did not meet the salary basis requirement to be exempt, and therefore should be paid for his overtime. 

Federal regulations provide that “An employee will be considered to be paid on a ‘salary basis’ … if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. … [A]n exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.” (29 C.F.R. § 541.602(a).)

The U.S. Supreme Court held that plaintiff was not paid on a salary basis.  The Court explained, “A daily-rate worker’s weekly pay is always a function of how many days he has labored.  It can be calculated only by counting those days once the week is over – not, [as the regulations require], by ignoring that number and paying a predetermined amount.”  The Court noted that the definition of “salary” refers to “fixed compensation regularly paid, as by the year, quarter, month or week,” which is distinguishable from “wages” for “[p]ay given for labor’ at ‘short stated intervals.’” (citing Webster’s New International Dictionary).

4. Salary basis test under CA Law

The California Court of Appeals in Negri v. Koning & Associates examined the same issue as reviewed in Helix, but under California law.  The case was decided in 2013, and reviewed the issue of whether an insurance claims adjuster who was paid $29 per hour with no minimum guarantee qualified as an exempt employee under California law. 

As the Court in Negri explained, “Exemptions from the overtime pay requirement are proper only where ‘the employee is primarily engaged in the duties that meet the test of the exemption, customarily and regularly exercises discretion and independent judgment in performing those duties, and earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.’ (Lab. Code, § 515, subd. (a).)”  The Wage Orders also govern, and the Court explained that while they do not define salary, the term “salary” “is generally understood to be a fixed rate of pay as distinguished from an hourly wage.” The Court held that because defendant stipulated that it never paid plaintiff a guaranteed salary and that if plaintiff worked fewer claims he made less money, therefore “plaintiff was not paid ‘a predetermined amount’ that ‘was not subject to reduction based upon the quantity of work performed.’”  Since plaintiff was not paid a salary, defendant did not prove that he qualified as an administrative exempt employee under the Wage Orders. 

5. Rational for the salary basis test

The Court explained in Helix, that the overtime laws were “designed both to ‘compensate [employees] for the burden’ of working extra-long hours and to increase overall employment by incentivizing employers to widen their ‘distribution of available work. Employees therefore are not ‘deprived of the benefits of the [overtime compensation] simply because they are well paid.”  The salary basis test “create a compensation system functioning much like a true salary – a steady stream of pay, which the employer cannot much vary and the employee may thus rely on week after week.” 

The Court also explained that Helix could comply with the salary-basis requirement in two ways:

  1. Add to plaintiff’s per-day rate a weekly guarantee that satisfied the requirements; or
  2. Could convert plaintiff’s compensation into a straight weekly salary for time spent on the rig.

Remember, the salary basis test is only one aspect of the federal and California exemption test.  Employers still must show that the employee earned the required salary level and meets the duties test in order to qualify for the applicable exemption.  More information about common exemptions under California law and the requirements to meet the exemptions can be read here.

One last note for wage and hour practitioners: Justice Kavanaugh raised an interesting point in his dissenting opinion about whether the Department of Labor’s regulations that set out the salary basis and level requirements could be challenged in the future as being inconsistent with the FLSA.  He noted that the FLSA statute only “focuses on whether the employee performs executive duties, not how much an employee is paid or how an employee is paid” and may not survive a challenge.  He notes, “But I am hard-pressed to understand why it would matter for assessing executive status whether an employee is paid by salary, wage, commission, bonus, or some combination thereof.” 

California’s minimum wage will be increasing on January 1, 2023 to $15.50 per hour. This Friday’s five reviews how the increase impacts California’s employers and addresses considerations for how employers deal with the patchwork of local jurisdictions that have their own minimum wage requirements:

1. White Collar Exemptions – Salary Requirement Tied to State Minimum Wage

California’s employment laws classify employees into two main categories: exempt employees and nonexempt employees. Federal and state laws exempt certain employees from wage and hour requirements. An exempt employee is an individual who is exempt from any overtime pay or minimum wage requirements. The “white collar” exemptions are: Professional, Executive and Administrative. To qualify as an exempt employee, the employer bears the burden to meet the requirements of a two part test the employees must meet to be exempt: (1) the salary basis test and (2) the duties test. The salary basis test requires that the employee must be paid a salary that is at least two times the state minimum wage, which will increase as California’s minimum wage increases.

In light of the new increase to the California minimum wage, effective January 1, 2023, the minimum annual salary to meet the white collar exemption increases to $64,480.00.  For more information on exempt employee classifications, see our prior article here.

2. Computer Professional Exemption Salary Requirement Increases in 2023

Labor Code section 515.5 sets forth that certain computer software employees are exempt from overtime requirements under the Labor Code. One aspect to meet this exemption is a minimum salary.  For 2023, California’s Department of Industrial Relations adjusted the computer software employee’s minimum hourly rate of pay exemption from $50.00 to $53.80, the minimum monthly salary exemption from $8,679.16 to $9,338.78, and the minimum annual salary exemption from $104,149.81 to $112,065.20 effective January 1, 2023.

3. Local Minimum Wage Ordinances

There are over 35 local minimum wage ordinances throughout California.  Employers are required to comply with the higher of the state or local minimum wage that applies to them.  Many of the local minimum wage rates increase on July 1 of each year, but there still are some that have a January 1 increase date.  Here are the examples of some cities that will increase the minimum wage as of January 1, 2023:

Employers must carefully review all applicable local minimum wage (and paid sick leave) requirements.

4. Industry Specific Minimum Wages

  • Hotel Workers:

In addition to state and local minimum wage rate, some localities also have industry specific rates. The employers should always check their local ordinances that might apply to their workforce/industry. There are some cities that apply specific rates for hotel workers. For example, the City of Long Beach and the City of West Hollywood have adopted ordinances requiring a higher minimum wage for these workers.

  • FAST Act – Fast Food Workers:

As we have written about on this blog, on September 5, 2022, California Governor Gavin Newsom signed into law AB 257, termed the Fast Food Accountability and Standards Recovery Act or FAST Recovery Act.  The law proposes to establish a Fast Food Sector Council to regulate California’s fast food restaurants. However, the law has been challenged and a coalition, the Save Local Restaurants Coalition, submitted over one million signatures on December 5, 2022, in opposition to the FAST Act to potentially block the new law. If the submitted signatures are found to be valid, the FAST Act would be placed on hold until November 2024 as a ballot referendum for California voters to decide the fate of the law.

5. Planning For Minimum Wage Increases

As we enter into 2023, some best practices for ensuring compliance with all minimum wage requirements include:

  • Review all exempt employee classifications and specifically list which exemption they qualify for and ensure they are paid the statutorily required salary.
  • Develop a chart listing all nonexempt employees by location and ensure compliance with the location where the employee is working.
  • Audit your payroll processing company to ensure they are updating the minimum wage and salary payments to employees. Do not rely on your payroll company to know or understand the minimum wage requirements here in California.

On March 7, 2019, the United States Department of Labor (“DOL”) issued a proposed rulemaking to increase the salary level that employees must receive in order to qualify as an exempt employee.  The DOL sets standards under the Federal Labor Standards Act (“FLSA”), but California employers are also required to comply with California’s wage and hour laws.  This Friday’s Five reviews five issues California employers need to understand about the DOL’s proposal and how it may affect them:

1. DOL’s proposed salary threshold for exempt employees.

The DOL’s proposal increases the minimum salary required under the FLSA for an employee to qualify as an executive, administrative or professional exemption (referred to as the “EAP” exemption) from the currently-enforced level of $455 to $679 per week (equivalent to $35,308 per year).

Since 2004,  the salary required under the FLSA was set at $23,660 per year.  The Obama administration proposed rules that would have required employers to pay employees that qualify for the EAP exemption a minimum salary level of at least $921 per week or $47,892 annually.  The Obama administration rules were set to take effect on December 1, 2016, but were blocked by a lawsuit filed by 21 states.  The March 7, 2019 proposed rules lower the salary requirement by about $12,000 as compared to the Obama administration proposed rules.

The DOL’s proposed rules are expected to become effective in January 2020.

2. DOL also increased the total annual compensation required for “highly compensated employees.”

The proposal increases the total annual compensation requirement for “highly compensated employees” (“HCE”) from the currently-enforced level of $100,000 to $147,414 per year.  This amount is about $13,000 higher than the proposed rule under the Obama administration.

3. The DOL did not propose any changes to the job duties test and did not set any automatic increases to the salary levels.

There were no changes to the job duties test that is required to qualify as an exempt employee.  In addition, there are no future automatic adjustments to the salary threshold.

4. California employers must still comply with California’s more stringent standards regarding exempt employees.

Under California law, exempt employees must perform specified duties in a particular manner and be paid “a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” (Lab. Code, § 515(a).)  As of January 1, 2019, the minimum wage in California increased from $11.00 to $12.00 per hour for employers with 26 or more employees (the increase is from $10.50 per hour to $11.00 per hour for employers with 25 or fewer employees on January 1, 2019).  With the increase in the state minimum wage, there is a corresponding raise in the minimum salary required to qualify as exempt under the EAP exemptions.

Therefore, on January 1, 2019, in order to qualify for an EAP exemption under California law, the employee must receive an annual salary of at least $49,920 for large employers and $45,760 for small employers.

In addition, California does not permit employers to consider bonuses, commissions, or other payments made to the employee during the year as part of the employee’s salary to meet the minimum threshold.  Finally, California does not contain a “highly compensated employee” exemption.

5. Don’t forget about the duties test.

With attention on the DOL’s salary increase required to meet the EAP exemptions, it is important for employers to remember that this is only one-half of the test used to qualify  as an exempt employee.  The law also requires that the employee perform more than 50% of their time performing exempt duties.  The duties that qualify as exempt can be difficult to determine, and many industries, such as insurance claim adjusters, financial service industry employees, executive assistants, and purchasing agents are just a few job classifications that have been the subject of litigation in the past.

To qualify as an exempt employee, California requires that an employee must be “primarily engaged in the duties that meet the test of the exemption” and “earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” Labor Code section 515. This forms the two-part test the employees must meet to be exempt: (1) the salary basis test and (2) the duties test. Here are five general issues employers should know about the salary basis test going into 2019:

1. Salary required to meet “white collar” exemption increases on January 1, 2019.

To be exempt from the requirement of having to pay overtime to the employee, the employee must perform specified duties in a particular manner and be paid “a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” (Lab. Code, § 515, subd. (a).)  As of January 1, 2019, the minimum wage in California increased from $11.00 to $12.00 per hour for employers with 26 or more employees (the increase is from $10.50 per hour to $11.00 per hour for employers with 25 or fewer employees on January 1, 2019).  With the increase in the state minimum wage, there is a corresponding raise in the minimum salary required to qualify as exempt under the “white collar” exemptions.  Therefore, on January 1, 2019, in order to qualify for a white collar exemption, the employee must receive an annual salary of at least $49,920 for large employers and $45,760 for small employers.

2. Salary must be predetermined and guaranteed.

The court in Negri v. Koning & Associates set forth that in order to qualify as a “salary” the pay “must still be a predetermined amount that is not subject to reduction based upon the quantity or quality of work.”  Therefore, bonuses, commissions, and other payments made to the employee during the course of the year are usually not considered part of the employee’s salary to qualify as exempt.  Employers need to be careful about the salary calculation to ensure the employee is paid a sufficient salary that qualifies the employee as exempt.

3. The employee’s salary cannot be reduced for quality or quantity of work.

In Negri v. Koning & Associates (2013), an insurance claims adjuster challenged his employer’s exempt classification of his job.  The plaintiff was paid $29 per hour with no minimum guarantee, and when he worked more than 40 hours in a week, he still only received $29 per hour.  The employer attempted to argue that the plaintiff was an exempt employee under the administrative exemption.  The court rejected the employer’s position in holding that because the employee did not receive a guaranteed amount in “salary”, the employee did not meet the salary basis test to qualify as exempt.  In determining what constitutes a salary, the court looked to federal law:

An employee is paid on a “salary basis” if the employee “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. Subject to the exceptions provided in paragraph (b) of this section [(relating to absences from work)], an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked. Exempt employees need not be paid for any workweek in which they perform no work. An employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.” (29 C.F.R. § 541.602(a) (2012)

Therefore, because the plaintiff’s pay varied according to the amount of time he worked, and was not guaranteed a base amount, he did not meet the salary basis test and was found to be non-exempt.

4. If misclassified, the employee is entitled to unpaid overtime.

For all non-exempt employees, overtime is owed at a rate of one and one-half times the employee’s regular rate of pay for all hours worked in excess of eight hours up to and including 12 hours in any workday, and for the first eight hours worked on the seventh consecutive day of work in a workweek.  Double the employee’s regular rate of pay is owed for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek.  California’s Department of Industrial Relations FAQ on California overtime provides a good overview of the overtime requirements under California law.  In addition to the unpaid overtime that is owed to misclassified employees, employers also fact substantial penalties that accrue as a result of the employee not being paid all wages when earned.

5. Employers bear the burden of proof in establishing the exemption.

California courts have made clear that the employer bears the burden of proof when asserting that an employee is an exempt employee.  “[T]he assertion of an exemption from the overtime laws is considered to be an affirmative defense, and therefore the employer bears the burden of proving the employee’s exemption.”  Ramirez v. Yosemite Water Co. (1999).

The DOL’s Final Rule was issued this week (see my previous article for the details), and we have had a few days to digest the new rules.  Now employers need to start putting together a plan to ensure compliance with the federal rules, and take time to ensure they are also complying with applicable California law.  This Friday’s Five is five suggestions to start the process:

1. Understand that the DOL’s changes apply to the FLSA, not California law.

At risk of sounding like a lawyer, the analysis to determine if an employee is properly classified as an exempt employee is very detailed and complex.  California’s requirements differ from the Federal requirements in many ways.  Therefore, it is imperative that California employers understand which laws apply to their employees, and that they are following the correct laws.  The set of rules that provides the employee with more rights and protections is usually the law that governs.  For example, to qualify as an exempt employee under California law, the employee must be paid the equivalent of two times the state minimum wage for full-time employment.  As of January 1, 2016, with the state minimum wage at $10 per hour, the annual salary must be at least $41,600 to qualify for the California white collar exemptions.  This is less than the annual salary of $47,476 or $913 per week as set by the DOL in the Final Rule.  Therefore, in order to avoid paying overtime for work over 40 hours in a week, California employers will need to pay at the higher salary required by federal law by the December 1, 2016 deadline.

2. Understand which law – federal or California – applies to your workforce.

Again, this analysis is complex and needs to be done carefully with competent legal counsel.  Generally, the law that gives employees the most protections or benefits must be followed.  The FLSA had a much lower salary basis test in the past, so California employers generally had to comply with California law regarding exempt status because it set a higher salary basis (the equivalent of two times the state minimum wage for full-time employment, which equals $41,600 annually, or $3,466.67 per month based on $10 per hour) and a stricter duties test than federal law.  Now, California employers will likely need to focus on compliance with the higher salary required under Final Rule, which becomes effective December 1, 2016, but still must also likely comply with California’s stricter duties test.  This is territory where advice from an employment lawyer particular to the client’s situation is critical.

3. Take time to evaluate workforce and reclassify employees if needed.

Employers should use the DOL’s Final Rule changes as an opportunity to audit their workforce to determine if employee classifications need to be reclassified prior to the December 1, 2016 implementation date of the Final Rule.  While the DOL changed the salary level required to qualify as exempt, employers cannot forget to ensure that exempt employee must also meet the requirements of the duties test, which generally requires employees to perform high level managerial duties for a substantial portion of their worktime.  As mentioned above, California applies a different, stricter duties test on employers, and because this provides more protection to the employee, California employers usually have to meet the California duties test.

It would also be an ideal time when the DOL’s regulations take effect to reclassify employees as nonexempt without raising the question of why the reclassification is taking place.

4. Update timekeeping systems and policies.

The increase in the salary basis test will likely result in many employers reclassifying employees as nonexempt.  Therefore, with more employees needing to clock-in an out for their start and stop times (in addition to tracking the start and stop times for meal breaks as required under California law), employers need to ensure their timekeeping system is up-to-date and compatible with their workforce.

5. Enforce a strict policy prohibiting off-the-clock work and implement policies designed to limit the amount of overtime worked to keep costs under control.

With many more employees likely being reclassified as nonexempt, it is even more critical that employers ensure they take all appropriate steps to protect themselves from off-the-clock work claims.  Employers should have an effective timekeeping policy and train their managers about preventing off-the-clock work.  In addition, employers need to develop a policy and train managers on the correct policies to control unauthorized overtime worked.  Managing overtime costs requires effective policies and manager training to ensure all wage and hour laws are complied with.

On May 18, 2016 the Department of Labor issued long awaited changes to the Federal rules setting forth the requirements for employees to qualify as exempt under the white collar exemptions.  Exempt employees are “exempt” from some labor laws governing employees, such as overtime pay.  Exempt employees are designated as such because they are “exempt” from certain wage and hour requirements due to their duties and level of pay (more information about exempt employees can be found here).  Generally speaking, in order to qualify as an exempt employee, the employee must meet (1) a salary basis test and (2) a duties test.  If the employee does not earn a high enough level of pay, or does not perform managerial duties for a certain percentage of their work time, the employee cannot qualify as exempt, and would be entitled to overtime pay and other labor law protections.

The DOL reviewed both the salary basis test and the duties test to “update and modernize the regulations governing the exemption of executive, administrative and professional (‘EAP’) employees” from the minimum wage and overtime pay protections of the Fair Labor Standards Act (“FLSA”).  The DOL’s Final Rule issued on May 18, 2016 makes the following changes to the FLSA requirements necessary for employees to qualify as an exempt executive, administrative, or professional employee:

  1. Exempt professional employees must earn at least $913 per week, or $47,476 annually for a full-year worker.  This is an increase from the $455 per week, or $23,660 annually for a full-year employee that is currently required under federal law.
  2. The higher salary requirement is effective December 1, 2016.
  3. The salary level that must be paid to employees to meet the salary basis test under federal law will increase automatically every three years.  Therefore, the first increase from the amount set forth above will take effect on January 1, 2020.
  4. Employers may count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the salary requirement.  The nondiscretionary bonuses and incentive payments must be paid on a quarterly or more frequent basis in order to apply.  Examples of nondiscretionary bonuses include bonuses set for meeting production levels, retention bonuses, and commissions based on a fixed formula.  Discretionary bonuses, such as bonuses provided to employees at the employer’s sole discretion and not according to predetermined standards cannot apply towards this 10 percent requirement.  Therefore, tips cannot be including when calculating the amount of salary the employee earns to meet the salary requirement pay.
  5. The Final Rule also allows employers to make “catch-up” payments to employees if they do not receive enough compensation in nondiscretionary bonuses in a given quarter to remain exempt.
  6. There is no change in the standard duties test.
  7. Set the total annual compensation requirement for highly compensated employees (HCE) subject to a minimum duties test to at least $134, 004.  The pay requirements for HCEs are effective as of December 1, 2016, and will also be reviewed and increased automatically every three years.

It is important to note for California employers that these changes apply to the FLSA, not California law.  Therefore, employers need to evaluate which law governs their situation (generally the law that provide more benefits or protections to the employee will apply, but this can be a complicated analysis, so approach with caution).  I’ll write more about how these changes will effect California employers in the coming days, as well as publish some resources for California employers to help navigate these changes.