Calif.: Employers Should Prepare for Upcoming Minimum Wage Increase

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On July 1, 2014, the first phase of California’s minimum wage increase will go into effect, and the wage will rise from the current $8 per hour to $9. Then, in January 2016, the minimum wage will go to $10 per hour. These impending changes provide a good opportunity for California employers to audit their pay practices and ensure that they are in compliance with all wage and hour laws, according to employment law attorney John K. Skousen, a partner with the Irvine, Calif., office of Fisher & Phillips. Employers should take preventive steps now to avoid costly litigation after the increase, he said.

“It is important for employers to be cognizant of the legal liabilities they could face if company wage and hour policies are not in compliance prior to the increase. This new law will make California the state with the highest minimum wage in the country, and employees must be aware of how the new law will affect exemptions as well.”

Wage and hour considerations that will be impacted by the increases include:

*Commissioned Salesperson Exemptions. Under Wage Orders 4 and 7, the exemption requires that commissions must make up more than half the employee’s compensation and the employee must earn more than one and one-half the state minimum wage for all hours worked. As such, to be exempt from overtime, commissioned salespersons will need to earn at least $13.50 per hour in July 2014, and at least $15 per hour by January 2016.

*“White Collar” Overtime Exemptions. Increases in the minimum wage will impact whether employees will qualify for one of the “white collar” overtime exemptions (executive, administrative, or professional) under California law. One requirement to apply is that the employee receive a monthly salary that is no less than two times the California minimum wage for full-time employment totaling 40 hours per week. The current minimum monthly salary is $2,774. The minimum salary will increase to $3,120 in July 2014 and $3,467 in January 2016.

Skousen recommended that employers take the following steps to ensure that wage and hour policies are in compliance with the increase:

*Conduct an Internal Wage Hour Audit. By conducting an internal audit to ensure compliance with wage and hour laws, companies can evaluate their policies and make revisions as necessary, ensuring that their timekeeping practices are bulletproof. In addition, updating employee handbooks to clearly outline the meal and rest period requirements can prove invaluable.

*Restructure Pay Agreements. Recent decisions in California address the issue of whether all hours worked on the clock have been fully compensated under the pay agreements in place, including but not limited to ruling that piece-rate compensation does not compensate for downtime, rest periods, or other idle “non-productive” periods. Consequently, such working periods deemed to be unpaid will result in claims for minimum wage violations unless pay agreements are revised and restructured to provide compensation for productive and non-productive periods.

*Have Employees Review Their Timecards Each Pay Period. Employees should verify and correct their own timecards each pay period, and initial them in their own handwriting. Employees should also sign a statement each pay period verifying that all meal and rest periods were provided or made available to them. By having employees sign and initial their timecards it becomes more difficult for them to challenge company timekeeping and engage in future litigation.

*Write Job Descriptions That Clearly Identify Employees’ Exempt Functions. Without job descriptions that specifically itemize employee duties and assign percentages of work time for each job function, employees who are classified as salaried exempt can later challenge their exempt status claiming they did not have any exempt functions as part of their job — and without a timecard tracking their actual hours worked, salaried employees can claim almost any amount of overtime they want. For example, to classify as exempt, managers must spend more than 50 percent of their time performing management duties. Clearly outlined and itemized job descriptions can ensure accuracy for the classification of exempt and non-exempt employees, preventing employees from suing for overtime in the future.