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New Wage Law May Have Some Workers Clocking Back In

Bill Dombrowski

Think California’s just-enacted minimum-wage increase only applies to low-paid hourly workers? Think again.

Under a little-noticed provision in state law, every time the minimum wage is increased, the exemption threshold for salaried workers also rises — but at double the annual minimum wage.

Right now, with the minimum wage at $10 an hour, supervisory, managerial, and professional employees must earn at least $41,200 a year to be legally exempt from the state’s hourly pay laws, including overtime pay and meal/rest breaks.

But when the minimum wage hits $15 a year for all employers in the state by 2023, that threshold will have jumped 50 percent as well — all the way to $62,400 a year.

Any worker earning below $62,400 must be paid hourly, get paid time-and-a-half for overtime, and be required to take regular meal and rest breaks.

Broad Impact

Employers in a wide range of industries — from restaurants and retail stores to the hospitality sector — classify at least some of their workers as supervisory personnel, exempt from hourly pay, overtime and other requirements. All of those exempt workers receiving less than $62,400 would either have to have their pay boosted to that level or would default to hourly employee status.

Professional businesses, such as law and engineering firms, also have entry-level salaried employees, though at many law firms, paralegals are paid hourly.

The number of exempt workers is not tracked statewide. But a pending rule change at the federal level that would hike the exemption threshold to $50,440 a year from the current $23,660 has been projected to impact more than 10 million workers, which would imply at least several hundred thousand such workers in California.

Immediate Hit?

Actually, it is that pending federal rule change that’s causing local employers more immediate concern, according to Matthew Bartosiak, senior consultant with the Employers Group, a human resources management organization in El Segundo. The Obama administration proposed the change last year, touting it as a way to make millions of workers eligible for overtime pay.

That rule change could take effect later this year, though Congress might act to override it and, should it survive that, legal challenges are widely expected.

“If this federal increase in the threshold goes through, that will have a huge impact because the increase to $50,000 would be immediate,” Bartosiak said.

In California, the impact would likely be less; many companies have already switched exempt salaried employees to nonexempt hourly employees. One reason: lawsuits.

“Many of my members have been forced to make the switch to nonexempt hourly status because they have been sued over this issue and lost in the courts,” said Bill Dombrowski, chief executive of the California Retailers Association in Sacramento, which represents major retail operators in the state.

Morale Blow

As for the jump in the exemption threshold in California as the minimum wage increases, Bartosiak said that while many employers might choose to convert salaried employees to hourly workers instead of boosting annual salaries to more than $62,000, that approach carries many downsides, for both workers and employers.

If other employers choose to reduce hourly pay for those converted to hourly status that will reduce vacation pay and employer contributions to pension plans, which are tied to pay rates. Required meal and rest periods could also impact workflow, especially during peak times.

But most of all, Bartosiak said, employee morale would likely suffer.

“For many workers, there’s increased status with the exempt salary designation,” he said. “Make them nonexempt and that status disappears. That’s bound to affect their morale.”

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