State and federal laws have brought about a number of significant changes to the wage laws this year that may affect non-exempt and exempt employees. Additionally, many California jurisdictions, including San Diego, have enacted their own minimum wage laws. These new regulations can directly impact your bottom line.
Minimum Wage Increase
On January 1, 2015, San Diego’s minimum wage was increased to $10.50 per hour. As of January 1, 2017, the minimum wage will increase to $11.50 per hour. Each year thereafter, the minimum wage will increase on January 1st until it peaks at $15.00 per hour on January 1, 2022. In addition to this new regulation, starting January 1, 2019, the City of San Diego’s minimum wage will be adjusted annually based upon the Consumer Price Index. Any adjustment resulting from this review will be announced in the month of October prior to the year the new minimum rate goes into effect (on the following January 1st).
In addition to the minimum wage increases, employees must be paid a minimum of 3 days per year in sick time; or employers are required to accrue 1 hour of sick time for every 30 hours worked.
Overtime Pay for Exempt Employees
On May 18, 2016, the Department of Labor issued a ruling updating overtime regulations, which will become effective December 1, 2016 and may automatically increase overtime protection to millions of workers. The new rule impacts whether executives, administrators and professionals will be considered exempt from overtime pay.
An exempt employee is one who is generally paid a salary to compensate for all hours worked each week, and who exercises discretion and independent judgment on matters of importance; while a non-exempt employee is typically paid by the hour for each hour they work in a pay period and receives overtime pay in accordance with applicable overtime rules.
Under California law, exempt employees must also be paid a salary that is twice the minimum wage of a full time employee. California also provides that an employee who earns less than $41,600 per year is not considered exempt. Effective December 1, 2016, the new Department of Labor rule changes the salary level minimum for executive, administrative and professional employees to remain in an exempt status from overtime pay requirements.
If an executive, administrative or professional’s annual salary is less than $47,476 by 12/1/16, you must pay overtime for 8+ hours in a day and/or 40+ in a week.
Your Course of Action
The bottom line: any exempt employee under the current law and other regulations, will have to be paid a minimum of $47,476 pursuant to federal regulations – not California’s current threshold of $41,600 – to retain their exempt status even if they perform exempt duties as administrators, professionals or managers.
As a business owner, you need to assess whether to change your exempt mid-level managers and administrators to non-exempt status, pay them an hourly wage, and provide all the wage and hour protections generally afforded non-exempt employees. Not only can this impact your potential profitability, but it may also impact the morale of your employees who deem the change in status as a demotion. You may also have to increase the annual salary of your exempt employees from the current $41,600 to the new rate of $47,476.
No matter your industry, this increase in the cost of doing business will require a laser focus on how best to remain profitable. A careful evaluation of your workforce, their ability to do their job in an 8-hour day/40-hour week may result in changing job classifications and/or duties and their exempt vs. non-exempt status.
TGG is offering a free consultation to help you develop your optimal course of action.
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