California Announces 2021 Increase in Compensation Rate for Computer Professional Exemption

Morgan Lewis
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Morgan LewisAs of January 1, 2021, California employers must ensure that compensation rates for computer professionals meet the updated salary thresholds.

In a memo issued on October 16, 2020 the California Department of Industrial Relations (DIR) increased the compensation threshold for exempt computer professionals by 2% over the 2020 rates. The compensation rates are adjusted annually for inflation according to the California Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers.[1] The CPI increased 2% over the last 12 months, despite the coronavirus (COVID-19) pandemic.[2] As a result, the compensation rate for the computer professional exemption has increased.

Effective January 1, 2021, employers must pay their California computer professional employees a salary of at least $98,907.70 annually ($8,242.32 monthly) or an hourly wage of $47.48 every hour worked in order to remain exempt from paying such employees overtime compensation.[3] In addition to the increased salary requirement, California computer professionals must also still satisfy the duties test set forth under California Labor Code Section 515.5.

Please note that the standard for federal exemptions for employees in computer-related occupations under the Fair Labor Standards Act (FSLA) differs from the California test. Under the US Department of Labor (DOL) regulations, the salary level threshold is $684 per week ($35,568 per year). In addition, an hourly computer-related position may also be exempt if paid at least $27.63 per hour.

Employers with computer professionals in multiple states should consider how they will address pay rates across different states, especially since the new California computer professional exemption salary is very close to the new salary threshold of $107,432 for the federal highly compensated employee exemption, which provides another avenue for exemption outside of California.

 

[1] The CPI is a measure of average change over time in the prices of fixed market goods and services and is considered to be an effective measure of inflation. For a history of annual percentage increase, see Division of Labor Standards Enforcement, History of Rate of Pay for Exemption for Computer Software Employee (Oct. 12, 2020).

[2] Typically, CPI data collection has been conducted via a personal visit. However, due to COVID-19 data collection by personal visit was suspended in March 2020. The US Bureau of Labor Statistics, on which California relies in part, has noted that the lack of a personal data collection program, and temporary business closings has resulted in an increase in the number of prices considered temporarily available.

[3] Although California Labor Code Section 515.5 requires the DIR to update the salary level “on October 1 of each year to be effective on January 1 of the following year,” the DIR historically has failed to publish the updated salary level until a few days later. But in 2018, the DIR announced that changes by the US Bureau of Labor Statistics will delay updates to the CPI, and therefore also to the exemption salary level, until mid-October.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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