Decision Time: $50K or Hourly?

Correction: The city of San Diego minimum wage will be $11.50 on 1/1/2017 (not $11).

You only have this month to complete the analysis of your salaried positions. Federal law is overriding all state laws and declaring exempt (salaried) employees must be paid at least $47,476 per year ($3,956.34/month or $913/week) by December 1st, 2016. This affects companies of all sizes.

If you haven’t yet done any thinking about this, it’s not too late. However, you want to make those decisions soon so you have time to implement any needed changes.

Is the position itself worth $50K to your company? Let’s face it… some positions cap out at a certain level and if you keep increasing the pay, you’ll be paying more for that position than everyone else. This is easier if you ignore the person and just focus on the job. In the end, even a great employee won’t make it worthwhile to keep paying higher and higher salaries. Things to consider:

• You can’t pay less even if they don’t work full-time.
• The $47,476 minimum is the minimum… if you pay only the minimum, they could never have an unpaid day even if they were out of available sick and vacation time.
• This minimum will potentially go up each year so I prefer to make decisions based on paying $50K or more.

You also need to look at those duties and determine if they are “exempt” level duties. The salary minimum is only one part of the qualifications for an exempt position; the duties are harder and more subjective. Are the duties significant enough? For example:

• Does this position manage at least 2 other people or a department?
• Does this position have the ability to sign or agree to something that could cost your company a significant amount of money?
• Can this position make policy or hire and fire?
• Does this position require specific licensure or certification?

Outside Sales Reps are the exception to this law so you are not required to pay this minimum salary to them because they should be earning commissions.

What happens if you do nothing? If you have qualified exempt employees who are not paid the legal minimum, you will owe the employee all monies due plus fines for late payment of wages and both state and federal taxes. If you have exempt employees who shouldn’t be, those employees will be owed for every hour of overtime they say they worked, penalty pay for missed or late meal breaks, etc. for the last 4 years. If you don’t have proof otherwise, California will believe anything the employee says.

This new federal law is actually working to your benefit at the moment. It gives you a great reason to move exempt employees to non-exempt without having to mention they might have been misclassified previously. Use this to your advantage and clean up your employee classifications this month. It can be very costly any other time. Please let us know if we can help.