The Importance of Reviewing Employees’ Wages

By Brian Ewing, Esq.

Minimum Wage

Conducting periodic reviews of the wages you pay to your employees is important, and even more so this year.  Initially, you will want to make sure that all of your employees’ pay rates are at or above the correct state and local minimum wage.  The California minimum wage is now $10.00 per hour.  It will increase to $10.50 per hour on January 1, 2017 for companies with more than 25 employees, and on January 1, 2018 for companies with 25 or fewer employees.  There are subsequent increases required by the state law every January 1 afterward, until it reaches $15 per hour on January 1, 2022 for companies with more than 25 employees, and on January 1, 2023 for companies with 25 or fewer employees.  After that, this minimum wage will be adjusted for inflation each year, and new rates will be published by the State at http://www.dir.ca.gov/dlse/faq_minimumwage.htm.

Many cities have higher minimum wages either at this time, or set to go into effect in the near future.  For example, the City of Los Angeles is incrementally raising its minimum wage until it reaches $15.00 per hour in 2020, 18 months earlier than the State.  L.A.’s minimum wage ordinance requires payment of the local minimum wage to employees who work two or more hours per week within the city limits, for all hours worked within the city limits, regardless of where the employer is located and regardless of whether the employee is a city resident.  The next increase is to $10.50 per hour, which will occur on July 1, 2016, for employers with over 25 employees and July 1, 2017, for employers with 25 or fewer employees.  There are subsequent increases required by the city ordinance every July 1 thereafter, until it reaches $15 per hour on July 1, 2020 for companies with more than 25 employees, and on July 1, 2021 for companies with 25 or fewer employees.  After that, the L.A. minimum wage will be adjusted for inflation each year, and new rates will be published by the City.  A newly created Office of Wage Standards will enforce the L.A. minimum wage, and also requires employers to post a notice to its employees.  The Office has already published this notice on its website at http://wagesla.lacity.org/.  Certain nonprofits can apply for a deferral under the ordinance.

The County of Los Angeles is following a similar minimum wage increase schedule that applies in unincorporated areas of Los Angeles County, like Calabasas, Marina del Rey, or Universal City.  Other cities have their own minimum wage laws, for example, San Francisco’s minimum wage rate is currently $12.25 per hour, increasing to $13.00 per hour on July 1, 2016.

Cities might also have living wage ordinances or minimum wage laws targeted at specific industries or workers.  For example, L.A.’s living wage ordinances applicable to contractors with the City and airport employees, and the L.A. minimum wage ordinance applicable to hotel employees, are still in effect.  Employers must follow whichever law applicable to them is more generous to its employees.  California and the U.S. Government have wage regulations applicable to federal or state contractors, for example, state prevailing wage laws.  Companies usually become aware of these requirements when they contract with the government.  For workers on those jobs, the requirements of the contract must be followed.

Salary levels for exempt employees

The California minimum wage is important not just for hourly employees, but also indirectly applies to salaried employees to whom employers wish to avoid paying overtime pay.  For workers to be considered exempt from overtime pay, several requirements must be satisfied, one of which is that the employee’s salary must equal or exceed two times the state minimum wage.  As of today, exempt employees must be paid a salary of at least $41,600.00 per year to qualify for any overtime exemption, and that minimum salary amount will change every time the state minimum wage changes.  This salary test is not affected by local minimum wages.

There is a strong possibility that the salary threshold described above for exempt employees will soon change because new federal regulations governing overtime exemptions are being written.  The Obama administration has not yet released the final regulations, but we expect they will be released by July.  The new regulations will change the salary test for overtime exemption under federal law, in all likelihood increasing it to $50,440.00 per year.  (The exact salary level for federal overtime exemption is not yet determined and will be contained in the final regulations.)  Employers subject to the Fair Labor Standards Act will have to satisfy this higher federal standard if they want to continue to have their employees be exempt from overtime requirements.

Gender pay gap

Employers must conduct wage analyses not just to make sure they comply with applicable minimum wage laws and meet the minimum salary requirements for exempt employees, but also to determine whether any pay inequities exist between employees of different genders.  Last year, California passed a tough new Fair Pay Act, which requires that women earn equal wages as men for “substantially similar work” (not necessarily the same job) when viewed as a composite of skill, effort, and responsibility and when performed under similar working conditions.  If wage differences exist, employers must be able to show that the differences are based on factors such as seniority, merit, quantity or quality of production, or other bona fide factors other than sex.  Employers should closely review their current pay practices and identify and correct any wage differentials that exist between women and men that cannot be justified by clear business realities.  When conducting such an analysis, do not rely on job titles alone, or on job descriptions that do not accurately reflect the position’s actual day-to-day duties.

In summary, periodically review your pay practices to ensure you satisfy all of the following:

  • Federal, state and local minimum wages and living wage or prevailing wage regulations, if applicable to you.
  • Salary tests for exemptions from overtime.
  • Equal pay between the genders.

Our firm is ready to assist you in reviewing your pay practices in order to determine if you meet the requirements of the new, wide reaching Fair Pay Act, as well as ensuring that you are complying with all federal, state and local minimum wage laws that apply to you.

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