LawFlash

California Introduces New Compensation Rate for Computer Professional Exemption

October 26, 2018

As of January 1, 2019, California employers must ensure that compensation rates meet new salary thresholds for computer professionals.

The California Department of Industrial Relations (DIR) issued a memo on October 19 (actually published on October 25) reflecting a 4.2% increase to the prior compensation threshold for exempt computer professionals.[1] The compensation rates are adjusted annually for inflation according to the California Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers.[2] Effective January 1, 2019, to qualify for the exemption, employers must pay their California computer professional employee a salary of at least $94,603.25 annually ($7,883.62 monthly) or an hourly wage of $45.41 for every hour worked.[3] In addition to the increased salary requirement, a California computer professional must also still satisfy the duties test set forth under Labor Code Section 515.5.[4]

With respect to the federal computer professional exemption, employers are still waiting to hear whether there will be any follow up on white collar exemption increases at the federal level, which could have an impact on computer professionals outside of California. As a reminder, in 2016 the US Department of Labor (DOL) was enjoined from implementing the “Final Rule,” which would have doubled the required salary level for white collar exempt employees from $23,660 to $47,476.[5] Notwithstanding the failure of the previous Final Rule, in 2017 the DOL issued a request for information and accepted comments for a new rule. After the comment period closed, the DOL announced that it planned to propose a new overtime rule by the end of October 2018.[6] However, nothing has been announced to date, in part likely due to Senate delays confirming DOL appointees. If the DOL ultimately were to publish a Notice of Proposed Rulemaking by the end of October, there would typically be a 60- to 90-day comment period. Accordingly, it is unlikely that any new rule would not go into effect until next year and, in any event, the minimum salary threshold is expected to be significantly lower than the increases proposed by the previous Final Rule. Thus, any new federal threshold is unlikely to have an impact on California computer professionals, given California’s much higher salary threshold, particularly given the recent increase. Nevertheless, employers with computer professionals in multiple states should consider how they will address pay rates across different states.

Contacts

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
Melinda S. Riechert
Michael D. Schlemmer
Alicia J. Farquhar
Aleksandr Markelov

Orange County
Barbara J. Miller

Los Angeles
John S. Battenfeld

San Francisco
Eric Meckley


[1] Maria Y. Robbins, Overtime Exemption for Computer Software Employees, Department of Industrial Relations (Oct. 19, 2018).

[2] The Consumer Price Index 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).

[3] 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 this year, the DIR announced that changes by the United States Bureau of Labor Statistics have delayed updates to the Consumer Price Index, and therefore also to the exemption salary level, until mid-month. And despite the memorandum’s October 19 date, this year’s announcement was not actually published until October 25. See Department of Industrial Relations notice (Feb. 22, 2018).

[4] See our LawFlash regarding the criteria for the duties test: Michael D. Schlemmer & Alicia J. Farquhar, California Computer Professional Salary Requirement to Increase to $88,231.36, Morgan Lewis (Oct. 6, 2016).

[5] US Department of Labor, Final Rule: Overtime, (last visited Oct. 25, 2018).