Poor Economy Results in Maintenance of Status Quo
for Compensation Rate of Exempt Computer Professionals
November 4, 2009
The California Department of Industrial Relations (DIR) has announced that the minimum compensation required to qualify for the state's computer-professional exemption in 2010 will remain unchanged from 2009. Thus, in 2010, to qualify for the computer-professional exemption in California, an employee must be paid a salary of at least $79,050 annually ($6,587.50 monthly).1 The minimum hourly rate and salary requirements for the computer-professional exemption under Labor Code Section 515.5 are adjusted annually for inflation according to the Consumer Price Index (CPI).2
Notably, despite that the CPI decreased by 1.4 this year, the DIR did not reduce the minimum statutory rates to be paid to exempt computer professionals. California Labor Code Section 515.5(4) states that: "[t]he Division of Labor Statistics and Research shall adjust both the hourly pay rate and the salary level described in this paragraph on October 1 of each year to be effective on January 1 of the following year by an amount equal to the percentage increase in the California Consumer Price Index for Urban Wage Earners and Clerical Workers" (emphasis added). According to the DIR interpretation, this statute only applies to increases in CPI. Thus, the DIR has taken the position that in years where the CPI increases, the salary requirement will increase, but in years where the CPI remains the same or decreases, the salary requirement will not change.3
In addition to meeting the compensation requirements described above, the computer-professional exemption also has duties-based requirements. To qualify for the exemption, the employee must spend 50 percent or more of his/her time engaging in one or more of the following duties: a) applying systems-analysis techniques and procedures, including consulting with users, to determine hardware, software, or system-functional specifications; b) designing, developing, documenting, analyzing, creating, testing, or modifying computer systems or programs, including prototypes, based on and related to user or system-design specifications; or c) documenting, testing, creating, or modifying computer programs related to the design of software or hardware for computer operating systems. In addition, an employee's job duties must be intellectual or creative and require the exercise of discretion and independent judgment. Lastly, the employee must be highly skilled and proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering.
Please note that there are certain specific exclusions that employers should review before relying on the California computer-professional exemption. For instance, technical writers and certain employees making use of computer-aided design (CAD) software who are not engaged in computer systems analysis or programming occupations are excluded from the exemption.
Wage and hour compliance, particularly with respect to computer professionals, continues to be a significant liability to California employers. Indeed, substantial verdicts and settlements have been reported in the last year both in California and throughout the country, ranging generally from several million up to as much as $640 million. Most recently, on October 16, 2009, IBM Corp. agreed to pay $7.5 million to settle allegations of misclassifying computer technical support workers as exempt. Also, on October 27, 2009, approximately 3,000 technical support workers employed by Wells Fargo & Co. gained conditional certification in a wage and hour class action before the Northern District Court of California alleging that the company misclassified the employees as exempt from overtime pay requirements. Moreover, both the California and federal governments are auditing employers with increasing frequency regarding compliance with wage and hour laws and assessing heavy penalties for non-compliance.4
Wilson Sonsini Goodrich & Rosati is able to assist employers in undertaking audits to address classification of their employees as exempt or non-exempt for overtime purposes in order to comply with federal and applicable state law.5 The firm has developed a custom and proprietary application for exemption analysis, which automates and streamlines the process. The application applies legal parameters to employer data, which allows for greater consistency and control of extensive data management and promotes more efficient use of attorney time. For more information on the computer-professional exemption or other related matters, please feel free to contact Fred Alvarez, Rico Rosales, Kristen Garcia Dumont, Alicia Farquhar, Elizabeth Tippett, Lauren Phillips, or any other member of Wilson Sonsini Goodrich & Rosati's employment law practice.
1 If the computer-professional employee is paid on an hourly basis, the minimum hourly rate required to qualify for the computer-professional exemption also will remain unchanged at $37.94. Please note that computer professionals compensated on an hourly basis must be paid for each hour worked even though no overtime premium applies. For example, if a computer professional is compensated at an hourly rate of $60.00 per hour and he or she works 45 hours in a week, the employee would need to be paid $2,700 for that week ($60.00 per hour x 45 hours).
2 Employers can check the following website each year to determine the applicable rate: www.dir.ca.gov/dlsr/CPI/OTCPI.pdf.
3 Despite the foregoing, based on the legislative history it appears that the legislative intent may have been to maintain the statutory rates established in 515.5 (of $36.00 per hour and $75,000 annually) as the minimum floor against which future increases would be measured. Indeed, the DIR approach used without modification arguably could lead to a result contrary to legislative intent. For example, if the already-depressed CPI rises slightly in 2011 (but nevertheless remains below the 2009 CPI), the DIR apparently would treat that as an "increase" for purposes of the statute. The DIR then would increase the minimum hourly rate applicable to computer professionals beyond the 2009 rate, even though the CPI in 2011 would be below 2009 levels. In particular, the percentage increase from a year in which there is a down economy measured against the next year when the economy has recovered would result in a much larger percentage increase than if there had been only a slight increase both years. Presumably the DIR will address this issue in October 2010 in the event of an economic recovery. In any event, in order to avoid actions regarding the exempt status of computer professionals, employers should ensure that in 2010 these employees are paid no less than $79,050 on a salary basis or $37.94 per hour worked if paid on an hourly basis.
4 The U.S. Department of Labor (DOL) announced that it is adding 150 investigators to its field offices to enforce wage and hour laws. In the 2008 fiscal year, the DOL collected $185,287,827 in back wages. In 2008, the California Division of Labor Standards Enforcement and the Economic Employment Enforcement Coalition assessed $46,295,855 in penalties for violations of wage and hour laws.
5 Wilson Sonsini Goodrich & Rosati also can assist employers in undertaking wage-compliance audits related to pay equity issues.