On Sept. 25, Gov. Jerry Brown signed AB10, a bill that will raise California’s minimum wage from $8.00 an hour to $10.00 an hour by 2016. The increase will occur incrementally, rising to $9.00 an hour on July 1, 2014, and finally to $10.00 an hour on January 1, 2016. While most employers understand that these increases affect their non-exempt hourly employees, they must keep in mind that they may also affect exempt employees. This is because California’s test for whether an employee is properly classified as exempt is tied to the state’s minimum wage. Thus, the increase creates a potential land mine for uninformed employers as employees who do not meet the new minimum salary threshold would no longer be properly classified as exempt. This change in the law provides employers with an opportunity to review their exempt employees’ job duties and ensure that they are properly classified as exempt.
Although often confusing, whether employees are paid a salary is not the determining factor for whether they are exempt. While under certain circumstances, non-exempt employees may be paid on a salary basis, exempt employees must always be paid a fixed salary. In order for an employee to be properly classified as exempt under the California Industrial Welfare Commission Orders, and thus stripped of many of its protections such as overtime and break requirements, the employer must demonstrate that the employee satisfies two tests: the “salary” test and the “duties” test.
The Salary Test
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