By Aaron Olsen
Minimum wage continues to be a hot button issue. For instance, in California, the state minimum wage increased from $8.00 to $9.00 per hour on July 1, 2014. The state minimum wage will further increase to $10 per hour on January 1, 2016. However, this affects more than just hourly employees. In California, for employees to be classified as exempt under the “executive” exemption, they must, among other things, be paid at least two times the state minimum wage for full-time employment in a fixed, predetermined salary. Thus, as of July 1, 2014, the minimum weekly salary is $720 per week (37,440 per year).
With the change in the minimum wage law in California, now is a good time to double check whether any of your employees who are classified as exempt meet all of the requirements. There has been a lot of attention recently on the “executive” exemption and how it is used in the hospitality industry. Indeed, as we have reported in the past, President Obama has ordered the Labor Department to revise the regulations concerning who can be classified as an “exempt or professional” employee.
For California employees who are classified as exempt under the “executive” exemption, it is important also to verify whether the employee:
- Manages the enterprise or a customarily recognized department or subdivision thereof;
- Customarily and regularly directs the work of at least two or more other employees therein;
- Has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring or firing and as to the advancement and promotion or any other change of status of other employees will be given particular weight;
- Customarily and regularly exercises discretion and independent judgment; and
- Spends more than 50% of his/her time engaged in exempt activities.
Watch for common pitfalls. For instance, if you have a seasonal operation, does the manager “regularly direct the work of at least two or more people” during the off season? If you divide up the responsibilities such that there are many managers, is each manager truly managing a “customarily recognized department or subdivision.” Also, how much say do they have in hiring or firing other employees? For instance, is that decision left to another department? If you were challenged in a lawsuit, would you be able to show that the employee spends more than 50% of his/her time in exempt activities?
In light of the steep penalties for misclassifying employees, it is important to be sure that anyone classified as exempt meets the requirements.