PaydayThis post was authored by Danny Y. Yoo

This year has kept many agencies on their toes when it comes to complying with the Fair Labor Standards Act.  This summer, the Ninth Circuit issued its Flores v. City of San Gabriel decision and changed the way many agencies calculate their regular rate of pay.  You can read about Flores here and here. Also in the summer, the federal Department of Labor (“DOL”) issued new regulations that would change the salary basis test for FLSA overtime exemptions.  These regulations were supposed to go into effect on December 1, 2016, but they have been put on hold by a temporary injunction.  You can read about the regulations and the injunction.

As we look toward 2017, there is yet another wage and hour compliance issue that many California public agencies should take note of: minimum wage.  Earlier this year, we discussed Senate Bill 3, which will increase California’s minimum wage each year so that it will reach $15 per hour in 2022.  Effective January 1, 2017, the minimum wage in California will be $10.50 per hour.  (The federal minimum wage is still $7.25 per hour.)

Does this new California minimum wage apply to your public agency?

Effective January 1, 2017, Labor Code section 1182.12 expressly states that for the purposes of California’s minimum wage, “employer” includes the “state, political subdivisions of the state, and municipalities.”  Thus, we recommend that general law cities comply with the state minimum wage requirements.

However, for counties and charter cities, there is a strong argument that the state minimum wage does not apply to those agencies because those agencies have exclusive rights under the state constitution to set compensation for their own employees.  In some limited instances, a matter of statewide concern can potentially supersede a county’s or charter city’s ability to set compensation for its employees.  Counties and charter cities must, of course, comply with any minimum wage that they have set for themselves.  For example, the City of Santa Clara’s minimum wage will be $11.10 per hour, effective January 1, 2017.  For counties and charter cities, legal counsel should be consulted in determining whether the minimum wage law applies to them.

What should our agency do about it?

If the state minimum wage applies to your agency, ensure compliance by reviewing the pay schedule for your employees, including part-time and seasonal workers.  The following chart is a guide for the minimum pay that complies with the new California minimum wage of $10.50 per hour:

Hours Per Week Weekly Minimum Monthly Minimum Yearly Minimum
20 $210 $910 $10,920
30 $315 $1,365 $16,380
40 $420 $1,820 $21,840

If your agency pays employees around or below these thresholds, we recommend that you carefully review the hourly rate at which your agency is paying them.  Please note that if your agency does need to raise the hourly rate for a particular employee or class of employees, you may have to negotiate with the appropriate employee bargaining unit because this directly affects their members’ wages.

Will the DOL regulations regarding the threshold salary for exempt employees affect compliance with the California minimum wage?

No.  The DOL regulations only address the threshold salary for employees who are exempt from FLSA overtime.  Employers are still required to pay minimum wage to these employees, regardless if they are exempt from overtime.  As a practical matter, however, the minimum salary thresholds for FLSA overtime exemptions ($455 per week) are higher than the state minimum wage requirements for a 40-hour employee ($420 per week).  Therefore, if an employee is properly classified as exempt from FLSA overtime, then he or she is being paid at least the state minimum wage.

Does this apply to independent contractors or interns? 

No.  This only applies to employees.  Agencies should be cautious, however, on relying on the classification of independent contractor or intern and should conduct an independent review of whether contractors and interns may actually be classified as employees.  On that point, we do not recommend employers changing an employee’s title to a “contractor” or an “intern” in an attempt to avoid paying minimum wage.