New Minimum Wage Rate/Non-Exempt Employees:
On January 1st, 2016, California's minimum wage per hour was raised from $9.00 per hour to $10.00 per hour. Although there are some exceptions, almost all employees in California must be paid the minimum wage as required by state law, this means that all non-exempt employees working in California are entitled to at least $10.00 per hour.
Some cities like San Francisco and Los Angeles (applicable to Orange County, CA), for example, have passed local city ordinances that command higher minimum wage to account for the higher cost of living in those areas. California employment law mandates that an employer must follow the minimum wage order that is most beneficial to the employee, that is, the highest minimum wage amount. As a non-exempt employee, you are entitled to overtime compensation at the rate of one and one/half your hourly rate, (if you make $10.00 per hour, your overtime rate would be $15.00), for all hours worked in excess of eight hours a day.
Interestingly, the Federal Minimum wage is still $7.25 per hour, which translates to $15,080 for a full-time, year-round worker. The federal minimum wage has not been raised since 2009.
What Does This mean To You If You Are Being Compensated With Tips Or Commission?
An employer must still pay you a minimum of $10.00 per hour for all hours worked, before any tips. An employer may NOT use an employee's tips as credit towards its requirement to pay you the minimum wage of $10.00 per hour. Essentially, you must be paid for all hours worked at the minimum wage rate, and tips earned are to be paid on top of the minimum wage. An employer cannot include your tips to show that you are making at least $10.00 per hour.
Employees Earning Commission:
California employment law requires that employees entering into employment agreements which involve compensation, even in part, on a “commission” basis must be provided a written contract which sets forth the method by which the commission is computed and paid. Employers must provide the employee with a signed copy of the commission agreement and obtain a signed acknowledgment of receipt of the copy.
The agreement must include:
- First, the method of computing the commission must be described completely. The employer must define the commissionable basis, whether the commission is based on revenue or a margin of revenue, profit, or another basis
- Second, the agreement must be clear as to when the commission is “earned,” so that the employee's entitlement to commissions upon the termination of employment is clear. For example, some employees may not “earn” their commission until after a certain event occurs after an item is paid for and delivered to the customer, or after a certain time period, like after thirty days.
- Third, the agreement should explain how draws will be applied to commissions. For example, if the schedule for reconciliation or settlement of commissions is less frequent than the employee's regular pay period, you may be required to pay a draw so that minimum compensation requirements are satisfied. If there is a formula for calculating the draw, it should be disclosed; otherwise, the amount of the draw, if fixed, should be specified.
- The agreement also should state the period for which commissions will be calculated (e.g., monthly), when draws are paid (e.g., weekly, semi-monthly, etc., if applicable), and when commissions will be reconciled and paid.
- An employee should make sure the employment contract is clear as to when commissions are paid in the event of termination of resignation.
Essentially, an employer will need to compensate for all hours worked at the minimum wage rate of $10.00 per hour on a regular basis, which is referred to as a “draw.” If your earned commission is more than the minimum wage amount and/or draw amount, then the draw is covered and you will be paid any excess commission amounts. However, if your commissions do not cover the draw, then the employer cannot deduct your make you pay back the minimum wage amount.
If you are an “exempt” employee as defined in California Wage Orders, then you can be “exempt” from being paid for overtime compensation, but you must earn a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.”
This means when the minimum wage increases so will the minimum salary required for exemption. Beginning January 1, 2016, the new minimum salary required will be $41,600. It is imperative to understand and remember that paying the minimum salary alone itself will not qualify a position for exempt status, there are also duties and time spent tests that must be met. In addition, all tests must be met in order to qualify for exempt status. This means if a company has positions that currently meet all the tests for exempt status but do not raise salaries to reflect the appropriate minimum salary required for exemption outlined previously those positions will revert to non-exempt status making them overtime-eligible.
Please see https://www.dir.ca.gov/dlse/FAQ_MinimumWage.htm for more information and please contact Aegis Law at (800) 543-4829 with any questions!