This blog post was authored by Alex Polishuk.
Effective January 1, 2016, California’s minimum wage increased to $10.00 per hour. This rate is applicable to and affects independent schools. At first glance, the takeaway from the new law seems apparent – a rise in minimum wage increases the hourly compensation for hours worked by minimum-wage employees. The change is particularly important when considered in combination with recent legal precedents that have expanded the meaning of “hours worked.” For example, as we previously wrote about here, the California Supreme Court has found that in certain instances sleep time may be considered “hours worked,” for certain employees.
The minimum wage increase, however, has another important implication for independent schools. California’s overtime laws require employers to compensate “non-exempt” employees who work in excess of eight hours in one workday or in excess of 40 hours in one workweek, at a rate of either one and one-half or two times the regular rate of pay, depending on the amount of excess time worked. Exempt status is determined, in substantial part, by whether an employee earns a monthly salary of at least two times the state minimum wage of $10.00 per hour. The minimum wage increase, therefore, now sets a higher compensation threshold that employees must meet to reach exempt status.
Criteria for exempt status for private sector employees are set forth by California’s Labor Code and by the Industrial Welfare Commission. Particularly, California Labor Code section 515.8 sets forth requirements that independent school teachers must meet to satisfy the “exempt” status. The labor code provision exempts a teacher at a private elementary or secondary academic institution (K-12) from overtime if the following conditions are met:
- The employee is primarily engaged in the duty of teaching, instructing, or lecturing;
- The employee regularly exercises discretion and independent judgment in performing the duties of a teacher;
- The employee attains at least a baccalaureate or higher degree from an accredited institution of higher education, or compliance with the California Commission on Teacher Credentialing, or the equivalent certification authority in another state; and
- The employee earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.
In other words, an employee is not automatically exempt by virtue of working in a “teaching” position. Before the recent rise in minimum wage, an independent school teacher had to earn $3,120 per month or $37,440 per year to meet the salary test of section 515.8. Now, however, in order to be classified as exempt, a teacher must earn at least $3,466 per month or $41,600 per year. A teacher earning less than $41,600 annually will not be considered exempt from overtime requirements. Part time teachers must meet the same monthly salary requirement in order to be considered exempt; the salary test is not pro-rated.
With this in mind, Schools also need to consider recent enactments by numerous cities around California that recently raised their local minimum wage above state level. For example, the minimum wage for the City and County of San Francisco is $12.25 per hour (and scheduled to increase on July 1, 2016) while the minimum wage for the City of Los Angeles will go up to $10.50 beginning July 1, 2016 (for employers with twenty-six or more employees) and will annually rise every year until reaching $15.00 beginning July 1, 2020. Schools located in a municipality that has implemented a local minimum wage above the state $10.00 level must ensure that employees are paid at a minimum of the local hourly minimum wage for all hours worked.
Importantly, however, while employees must be paid minimum wage pursuant to local ordinances, exempt status for teachers will still be based on California’s state mandated minimum wage. The requirement of Labor Code section 515.8 requires a monthly salary of “two times the state minimum wage for full-time employment.” In other words, section 515.8 does not look to local minimum wage in determining exempt status.
In light of these new laws, Schools should review the compensation schedules of their employees to ensure compliance with state and local minimum wage requirements. Schools should confirm that all employees are being compensated at a minimum rate of $10.00 per hour for all hours worked. Schools should also review the annual compensation for their exempt teachers and ensure that it meets the new requirement of being compensated at an annual rate of $41,600 per year. If a teacher’s compensation does not meet this threshold, then he or she will not be eligible for “exempt” status.