LawFlash

California Announces Increased Compensation Rates for Computer Professional Exemption in 2027

October 19, 2026
3 minute read
Authors: Alicia J. Farquhar, Michael D. Schlemmer, Ulises Solis

Key Takeaways

  • California will increase the minimum compensation thresholds for the computer professional exemption effective January 1, 2027.
  • Employers must ensure exempt computer professionals are paid at least the new annual, monthly, or hourly rate announced by the Department of Industrial Relations in October 2026.
  • The duties requirements for the exemption remain unchanged; employees must still be primarily engaged in qualifying computer-related work and meet the skills requirements under Labor Code Section 515.5.
  • Satisfying the compensation threshold alone does not guarantee exemption; employers must ensure both compensation and duties tests are met.
  • The federal computer employee exemption under the Fair Labor Standards Act differs from California’s exemption in both compensation and duties requirements, so multijurisdictional employers should carefully review both standards.

California employers must ensure that compensation rates for exempt computer professionals meet new thresholds beginning January 1, 2027.

The California Department of Industrial Relations (DIR) on October 16, 2026 announced in its memo that, effective January 1, 2027, qualifying computer professionals must earn at least $127,108.34 annually ($10,592.37 monthly), or $61.03 per hour. California employers relying on the computer professional exemption will need to account for another increase in the exemption’s compensation threshold in 2027.[1][2] The DIR adjusts the minimum compensation required for the exemption each year based on changes in the California Consumer Price Index for Urban Wage Earners and Clerical Workers (CCPI-W).[3]

The new thresholds represent a 3.7% increase from the prior 2026 rates of $122,573.13 annually ($10,214.44 monthly), or $58.85 per hour. Employers should identify employees currently classified under the exemption, review applicable compensation rates and confirm that employees continue to meet the duties test, and determine whether compensation adjustments will be necessary before the new rates take effect.

CALIFORNIA COMPUTER PROFESSIONAL DUTIES TEST REMAINS UNCHANGED

The annual increase affects the compensation requirement, but it does not change the substantive duties requirements for California’s computer professional exemption. Under California Labor Code Section 515.5, an employee must be primarily engaged in intellectual or creative work that requires the exercise of discretion and independent judgment.

The employee also must be primarily engaged in one or more of the following:[4]

  • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications
  • The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications
  • The documentation, testing, creation, or modification of computer programs related to the design of software or hardware for computer operating systems

In addition, the employee must be highly skilled and proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, or software engineering.

California law also excludes certain employees and duties from the exemption.[5] Accordingly, satisfying the compensation threshold alone does not establish exempt status. Employers should consider both compensation and actual job duties when reviewing classifications.

FEDERAL COMPENSATION AND DUTIES STANDARDS FOR COMPUTER EMPLOYEE EXEMPTIONS UNDER THE FLSA DIFFER FROM CALIFORNIA’S

The federal computer employee exemption under the Fair Labor Standards Act differs from California’s exemption. Under the current federal standard, qualifying computer employees may be compensated on a salary or fee basis at a rate of at least $684 per week ($35,568 annually) or, alternatively, on an hourly basis at a rate of at least $27.63 per hour.

The applicable duties requirements also differ under federal and California law. The federal exemption uses the “primary duties test,” rather than the California “primarily engaged in” or “qualitative test.”  Employers should therefore avoid assuming that an employee who qualifies for the federal exemption necessarily qualifies under California law. Employers with computer professionals working in multiple jurisdictions should separately evaluate the requirements applicable in each jurisdiction.



Authors

Alicia J. Farquhar
Of Counsel
Silicon Valley
Michael D. Schlemmer
Partner
San Francisco Silicon Valley
Ulises Solis
Associate
Silicon Valley

[1] California Labor Code Section 515.5 requires the DIR to update the salary level “on October 1 of each year to be effective on January 1 of the following year”; however, the DIR historically has failed to publish the updated salary level until a few days later. Changes made by the US Bureau of Labor Statistics in 2018 have delayed and will likely continue to delay updates to the CCPI-W, and therefore also delay the DIR’s update to the exemption salary level to mid-October. Despite the recurrent delays, there has been no effort to change Section 515.5 to allow employers more time to implement salary changes, which must still be in place by January 1.

[2] Many state and local laws will also increase the minimum wage starting in 2027. For example, California will increase the state minimum wage by 2.99% to $17.40 per hour, which will also impact the general state exemption threshold, which will be an annual salary of at least $72,384 (i.e., two times the state annual minimum wage). Of course, employers should also note that many local jurisdictions have hourly minimum wages that may exceed the state minimum for nonexempt workers.

[3] The CCPI-W is a measure of average change over time in the prices of fixed market goods and services and is considered to be an effective measure of inflation.

[4] More than 50% of an employee’s worktime must be spent on one or more of these exempt duties. Cal. Lab. Code § 515(e).

[5] For instance, the exemption does not apply to employees who are engaged in the “manufacture, repair, or maintenance of computer hardware and related equipment.” Cal. Lab. Code § 515.5(b)(3).