California employers must ensure that compensation rates for computer professionals meet new salary thresholds, effective January 1, 2023.
As inflation continues to rise, so too have the minimum wage thresholds for the California Computer Professional exemption. [1] Indeed, the California Department of Industrial Relations (DIR) published a memo on October 14, 2022, increasing the compensation threshold for exempt computer professionals by 7.6%, compared to the 2022 rates. The compensation rates are adjusted annually to account for inflation according to the California Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers. [2]
To qualify for the California computer professional exemption, starting January 1, 2023, California employers must pay their computer professional employees a salary of at least $112,065.20 annually ($9,338.78 monthly) or an hourly wage of $53.80 every hour worked. [3]
In addition to the increased salary requirement, a California computer professional must also still satisfy the duties test set forth under California Labor Code Section 515.5, which remains unchanged. The California computer professional employee’s primary responsibilities must include at least one of the following:
The California computer professional 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. Moreover, the duties test generally requires the computer professional to be primarily involved in work that is intellectual or creative and that requires the exercise of discretion and independent judgment. The Labor Code also specifies certain duties that do not qualify.
The California test for computer professionals differs from the federal regulations under the Fair Labor Standards Act (FSLA). Under the US Department of Labor (DOL), employees in computer-related occupations must meet a salary of at least $684 per week ($35,568 per year) or an hourly wage of $27.63 per hour to qualify for the federal exemption.
Employers with computer professionals in their workforce across multiple states should consider how they will address pay rates across different states, especially since the new California computer professional exemption salary is now greater than the salary threshold of $107,432 for the federal highly compensated employee exemption, which provides another avenue for exemption outside of California.
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[1] It should also be noted that many state and local laws, including California law, will also increase the minimum wage for all employees based on inflation starting in 2023. California will increase the state minimum wage by 3.5% to $15.50 per hour, which will also impact the state exemption threshold. Given the number of remote workers in the post-pandemic workforce, employers should carefully review each applicable jurisdiction, including the local city and county jurisdictions, in which their employees reside and work, as the amount of minimum wage increases vary widely.
[2]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 the California Division of Labor Standards Enforcement’s History of Rate of Pay for Exemption for Computer Software Employee.
[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.