Exempt Classification Rates Change on January 1, 2019
If your company has 25 employees or less and you have salaried employees earning less than $45,760 or if your company has 26 or more employees and your salaried folks aren’t earning at least $49,920 in 2019, your company could be open to hefty fines and lawsuits in the New Year!
Because the state minimum wage will increase on January 1, 2019, to $12 an hour for employers with 26 or more employees and $11 an hour for employers with 25 or fewer employees, the minimum salary for the administrative, professional and executive exemptions will also increase.
Remember, exempt employees in California are required to pass both a salary and a duties test. To pass the salary test, an employee must earn at least two times the state minimum wage and this rate must be multiplied by 2080 hours.
Salary Tests for 2019
1. Small employers (25 employees or less) must pay any salaried exempt employee at least: 2 x $11 x 2080 hours = $45,760
2. Larger employers (26 or more employees) must pay all salaried exempt employees at least: 2 x $12 x 2080 hours = $49,920
What’s the Remedy? An employer can give employees below the required salary test a raise or they can change the employee’s classification to a non-exempt hourly position.
(You can find more information on the ripple effects of the 2019 minimum wage hike in our recent newsletter article.)
Generally, exempt employees are key personnel who have the discretion to make independent decisions based on their own judgment. They perform decision-making responsibilities and tasks more than half of each workday. An exempt employee must be able to complete an exemption worksheet that corresponds to their position:
- Computer Professional ($45.41/$94,603.25)
- Physicians ($79.39/hr)
- Outside Sales People—no salary test
- Drivers regulated by DOT
In addition, the computer software employees’ exemption and the licensed physician and surgeon exemption are tied to the California Consumer Price Index (CCPI) for Urban Wage Earners and Clerical Workers. Rate changes are announced by the California Department of Industrial Relations (DIR) each year. The 2019 rate changes reflect a 4.2% increase in the CCPI.
Make sure you are ready for the New Year by reviewing these rate changes.