The California 2020 legislative session has closed, and employers should be preparing for 2021 by updating policies and procedures. Employers should ensure that the minimum wage for non-exempt employees’ wages will be appropriately increased for 2021. Since 2017, California has been working its way up to an eventual $15 minimum wage. Industry groups rallied for “pausing” 2021’s increase, but to date, there is no indication this will happen.

On January 1, 2021, the state minimum wage will increase to $14.00 for employers with 26 employees or more, and to $13.00 for employers with 25 employees or less, unless the employees perform work in one of the many cities that have their own local minimum wage ordinance.   Employers should review non-exempt employee wages and make appropriate adjustments to ensure compliance for 2021.

While many employers are familiar with the need to increase non-exempt employees’ wages as state minimum wage increases on January 1st, employers might overlook the need to also increase some of their exempt employees’ salaries to meet the salary basis requirement of California law.

Exempt employee’s salaries must meet a certain threshold for the employees to be exempt under the executive, administrative, and professional exemptions. In California, exempt employees must receive a salary of at least twice the state minimum wage for a 40-hour workweek, in addition to meeting the general duties and other requirements. For 2021, this means exempt employees must receive a minimum annual salary of $58,240 for employers with more than 26 employees, and $54,080 for employers with 25 employees or less.  The base salary must be fixed and recur each pay period without variance due to hours, quantity, or quality of work performed.

For certain exempt positions, the Department of Industrial Relations (“Department”) annually sets the minimum salary requirement by following a formula set by the California Labor Code. This month the Department released the salary requirements for Computer Software Employees, Physicians, and Surgeons.

Computer software employees in 2021 may be exempt from overtime if their hourly rate is not less than $47.48, the minimum monthly salary requirement is not less than $8,242.32, and the annual salary requirement is $98,907.70.