New Compensation Threshold for Computer Software Overtime Exemption

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Effective January 1, 2019, the California Department of Industrial Relations issued a new compensation threshold for exempt computer software employees, reflecting an increase of 4.2% from last year.

To qualify for the overtime exemption, computer software employees must be paid a salary of at least $94,603.25 annually ($7,883.62 monthly), or an hourly wage of at least $45.41.  In addition, a computer software employee must also meet the duties test set forth in California Labor Code Section 515.5, which are also included in all Wage Orders except Orders 14 and 16.

More specifically, the employee must be primarily engaged in work that is intellectual or creative and that requires the exercise of discretion and independent judgment.  Job titles do not determine of the applicability of this exemption.  Rather, the Labor Code and Wage Orders state that the computer software employee’s duties must primarily consist of one or more of the following:

(A) The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications.

(B) The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications.

(C) The documentation, testing, creation, or modification of computer programs related to the design of software or hardware for computer operating systems.

The computer software employee must also be highly skilled and proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, or software engineering.

The exemption does not apply to an employee who is a trainee or employee in an entry-level position who is learning to become proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering.  Nor does the exemption apply to someone who has not yet not attained the level of skill and expertise necessary to work independently and without close supervision.  Persons engaged in the operation of computers or in the manufacture, repair, or maintenance of computer hardware and related equipment are not eligible for the exemption.  Other types of workers, such as  engineers, drafters, machinists, or other professionals whose work is highly dependent upon or facilitated by the use of computers and computer software programs and who are skilled in computer-aided design software, including CAD/CAM, but who are not engaged in computer systems analysis, programming, or any other similarly skilled computer-related occupation, are similarly not eligible for the computer software exemption to overtime, although other exemptions may apply.  Similarly, writers engaged in writing box labels, product descriptions, documentation, promotional material, setup and installation instructions, either for print or for onscreen media that is computer-related, do not fall under this exemption.  Persons who create imagery for effects used in the motion picture, television, or theatrical industry who might otherwise meet the duties test are singled out for exclusion by the Labor Code and Wage Orders.

The increase is required by Labor Code Section 515.5 (a)(4), which imposes annual adjustments to this threshold based on increases in the California Consumer Price Index for Urban Wage Earners and Clerical Workers.

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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