As of January 1, 2020, California employers must ensure that compensation rates for computer professionals meet new salary thresholds.
In a memo issued on October 29, the California Department of Industrial Relations (DIR) increased the compensation threshold for exempt computer professionals by 2.5% over the 2019 rates. The compensation rates are adjusted annually for inflation according to the California Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers.[1] Effective January 1, 2020, employers must pay their California computer professional employees a salary of at least $96,968.33 annually ($8,080.71 monthly) or an hourly wage of $46.55 for every hour worked in order to remain exempt from paying such employees overtime compensation.[2] In addition to the increased salary requirement, California computer professionals must also still satisfy the duties test set forth under California Labor Code Section 515.5.
With respect to the federal exemption for employees in computer-related occupations under the Fair Labor Standards Act (FLSA), the US Department of Labor (DOL) issued a new final rule that will increase the required salary level from $455 per week ($23,660 per year) to $684 per week ($35,568 per year). Under existing DOL regulations not impacted by the final rule, an hourly computer-related position may also be exempt if paid at least $27.63 per hour.[3] The final rule is effective January 1, 2020, and resolves the uncertainty that has lingered since 2016, when the DOL was enjoined from implementing an earlier version of the rule that would have doubled the required salary level for white-collar exempt employees from $23,660 to $47,476.
Given California’s much higher salary threshold, this new federal threshold will not impact California computer professionals. Nevertheless, employers with computer professionals in multiple states should consider how they will address pay rates across different states, especially since the new California computer professional exemption salary is very close to the new salary threshold of $107,432 for the federal highly compensated employee exemption, which provides another avenue for exemption.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Silicon Valley
Michael D. Schlemmer
Alicia J. Farquhar
Aleksandr Markelov
Orange County
Barbara J. Miller
Los Angeles
John S. Battenfeld
San Francisco
Eric Meckley
[1] The CPI 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. For a history of annual percentage increase, see Division of Labor Standards Enforcement, History of Rate of Pay for Exemption for Computer Software Employee (Oct. 6, 2017).
[2] Although 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,” the DIR historically has failed to publish the updated salary level until a few days later. But in 2018, the DIR announced that changes by the US Bureau of Labor Statistics will delay updates to the CPI, and therefore also to the exemption salary level, until mid-October; although this year’s announcement is dated October 22, it was not actually published until October 29.
[3] Among other changes, new DOL regulations allow employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level. The new regulations also allow for a “catch-up payment” at the end of the year to make up for a shortfall in nondiscretionary bonuses and incentive payments. See our LawFlash, DOL Update to FLSA Regulations Extends Overtime Pay Eligibility.