January 1st should just be called New Pay Day because that’s when we must update wages and salaries every year. December is the perfect time to review the exempt and non-exempt status of your employees to ensure you have correct classifications. It is also the time of year to review any independent contractors to ensure they still meet the legal standards for contractors in California. The following wages and salaries are effective on 1/1/2022:
Minimum Wage
Minimum wage is a mandatory hourly rate of pay for hourly (non-exempt) employees. Throughout California, you must pay $15.00 per hour if you have 26 or more employees in 2022. It’s only $14.00 per hour if you have 25 or fewer employees. However, 2022 will be the last year there is a difference in minimum wage based on the number of employees in your company.
California considers it wage theft if you are not paying employees minimum wage for all hours worked, overtime pay for any work over 8 hours in a day or 40 in a week, or premium pay when appropriate based on CA law. New laws have imposed higher penalties for wage theft, and this is one of California’s hot buttons. In addition, if your hourly employees are required to pay for anything themselves to work for you, do the calculation of earnings minus expenses to be sure the net amount is still more than minimum wage. The courts have been harsh on companies paying less than minimum wage due to the employee paying for business expenses.
Minimum Salary
A salary is a flat amount paid each pay period to exempt employees, regardless of the number of hours worked. In accordance with Federal law, exempt employees must pass two tests to be eligible for this status: a salary test and a duties test. The minimum salary amount is always a calculation of two times state minimum wage times 2,080. For 2022 in California, this will be $15.00 X 2 = $30.00 X 2080 = $62,400/year for companies of 26 or more employees. It’s $58,240/year for companies with 25 or fewer employees.
The minimum salary cannot be prorated to a lower number based on part-time work even though the minimum is based on full-time hours (2,080). If the work isn’t worth the minimum to your company, convert the employee to non-exempt hourly. If you pay exactly the minimum, the employee cannot ever have an unpaid day off or they will drop below the minimum and automatically become hourly… the full amount must be paid every pay period. This is just the salary test portion of determining if the employee meets the exempt qualifications per Federal law.
Exempt Software Professionals
This is a special category only available in California and was first created after the dot.com bubble burst years ago. There is not only a special salary but also special requirements to be eligible for this exemption. The salary changes every year and seems to have nothing to do with the regular minimum salary. In 2022, the minimum will be $104,149.81/year but also allow hourly pay of $50.00/hour. This special position is also eligible for overtime pay. The bigger challenge for this exemption is the duties test. The person in the position must be at a level of skill and expertise necessary to work independently and without close supervision and is often creative. Regardless of the amount you pay, look into the details of the types of computer professionals allowed to use this exemption.
Misclassifications
In closing, we want to remind you of the problems with “guessing” wrong when classifying employees. When, not if, you’re caught misclassifying someone as exempt instead of hourly or a contractor instead of an employee, EDD (CA’s Employment Development Department) will audit you going back three to four years. They won’t look at just this one case; they will review and analyze all monies paid to individuals and the work they did in their role. If you are found to have misclassified anyone, you will be responsible for any state payroll taxes due to CA, and any unpaid overtime and premium payments due to the employee… plus fines and penalties. Once EDD is finished, they automatically turn you over to IRS (Federal Internal Revenue Service) for similar treatment. It’s just not worth it to be wrong… instead, be conservative when classifying workers.
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