"Side Effects" of California's Increased Minimum Wage

On January 1, 2007, California increased its minimum wage from $6.75 to $7.50 per hour.

Putting aside the fact that an extra 75 cents for each hour worked really has no effect on people's lives (just $1,560 per year before taxes), there are some "side effects" of this increase employees should be aware of.

Background

Under California law, the presumption is that all employees must receive overtime pay at 1.5 times their hourly rate. There are "exemptions" to this rule for employees who do certain jobs, such as managers, administrators, some commissioned salespeople and some professionals.

However, the "duties test" (what an employee actually does at work) is only one element that MUST be satisfied to determine if an employee is supposed to receive overtime.

The other major test that MUST be satisfied is the "salary basis" test. This test is two-fold. First, an employee must be paid on a salary basis, meaning they receive a set amount of pay each week no matter how many hours they work.

The "Side Effect"

The second part of the "salary basis" test is the main point of this post. An employee MUST receive twice the minimum wage to be exempt from overtime pay. Commissioned salespeople MUST receive 1.5 times minimum wage to be exempt. If this criteria is not met, these employees are automatically entitled to overtime pay.

Under prior law, employees had to receive $28,080 per year to be exempt (twice the minimum wage ($13.50) X 40 hours X 52 weeks), but now that number has risen to $31,200.

So, all employers who simply pay their employees a flat salary of $30,000 per year suddenly have employees who should be (and are not) receiving overtime pay as of January 1, 2007.

Many employers may not realize the "side effect" of this change in California law and they might not even know that the exemption is tied to the minimum wage in the first place.

Overtime pay is a legal entitlement--NOT a fringe benefit. If you do not meet the criteria for overtime exemption and do not receive overtime pay, you should do something about it.

Tags

California Employment Law | Commissions | Minimum Wage | Wages : Overtime | Wages and Hours

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