California Announces 2022 Increase in Compensation Rate for Computer Professional Exemption

Morgan Lewis
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Morgan Lewis

California employers must ensure that compensation rates for computer professionals meet updated salary thresholds, as of January 1, 2022.

The California Department of Industrial Relations (DIR) issued a memo on October 18, 2021 increasing the compensation threshold for exempt computer professionals by 5.3%, compared to the 2021 rates. The DIR adjusts the compensation rates each year to account for inflation based on the California Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers.[1] Despite the coronavirus pandemic that has now been ongoing for 19 months, the CPI increased 5.3% over the last 12 months.[2] As a result, the compensation rate for the computer professional has also increased.

Starting January 1, 2022, California employers must pay their computer professional employees a salary of at least $104,149.81 annually ($8,679.16 monthly) or an hourly wage of $­­­­­50.00 every hour worked in order to remain exempt from paying such employees overtime compensation.[3] In addition to the increased pay requirement, California employers must ensure that their computer professionals satisfy the duties test set forth under California Labor Code Section 515.5.

Importantly, the California test for computer professionals differs from the federal regulations. With respect to the federal exemption for employees in computer-related occupations under the Fair Labor Standards Act (FSLA), the US Department of Labor (DOL) lists a salary level threshold of $684 per week ($35,568 per year). Further, an hourly paid computer-related position may be exempt if paid at least $27.63 per hour.

Employers with computer professionals in their workforce across multiple states should consider how they will address pay rates across different states, especially since the 2022 California computer professional exemption salary threshold is very close to the salary threshold of $107,432 for the federal highly compensated employee exemption, which provides another avenue for exempt status outside of California.

[1] The CPI is a measure of average change over time in the prices of fixed market goods and services which the US Bureau of Labor Statistics considers 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 (October 13, 2021).

[2] Typically, CPI data collection has been conducted via a personal visit. However, due to the ongoing COVID-19 pandemic, the US Bureau of Labor Statistics suspended data collection by personal visit in March 2020. The US Bureau of Labor Statistics, on which California relies in part, has noted that the limitations on data-collection staff, the availability of survey respondents, and the availability of items have resulted in an increase in the number of prices.

[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. Changes by the US Bureau of Labor Statistics made in 2018 have delayed and will likely continue to delay updates to the CPI, and therefore also delay the DIR’s update on exemption salary level to mid-October. Despite the recurrent delays, there has been no effort to change California Labor Code Section 515.5 to allow employers more time to implement salary changes, which must still be in place by January 1.

[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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