Exempt Employee Pay in California: Why You Must Consider Local Minimum Wage Laws

In California, properly classifying an employee as exempt from overtime and other wage protections requires more than just a job title. Employers must satisfy both:

1. The Duties Test: The employee performs primarily exempt executive, administrative, or professional functions.
2. The Salary Basis Test: The employee earns a fixed salary that is at least twice the state minimum wage for full-time work (40 hours/week, 52 weeks/year).

Most employers know the salary basis test is tied to the state minimum wage, which in 2025 is $16.50/hour, meaning the minimum exempt salary is $68,640/year. However, if your employees work in a city or county with a higher local minimum wage, failing to account for that higher rate could cost you significantly.

Real Consequences before the California Labor Commissioner

I recently represented an employer in a wage claim hearing before the California Labor Commissioner, where the classification of an employee as exempt was at issue. My client had paid the employee a salary that clearly met the state salary basis test. However, the employee worked in a city with a higher local minimum wage.

We heavily briefed the issue, including by citing to the California Labor Commissioner’s own published guidance on the issue explicitly stating that the salary basis test is tied to the state minimum wage—not local minimum wages. Nonetheless, the Labor Commissioner rejected those authorities and summarily stated in the written decision that it was the agency’s position that the salary basis test must be based on the local minimum wage, despite the fact there is not a single case or any other authorities that support the Labor Commissioner’s position.

The result? My client was hit with tens of thousands of dollars in liability for back pay, unpaid overtime, missed meal and rest periods, wage statement violations, and penalties.

Takeaways for Employers

• Don’t assume the state minimum wage is the only benchmark. Always check for local minimum wage ordinances in the cities or counties where your exempt employees work.
• Pay at least 2× the local minimum wage for any exempt employee in that jurisdiction in case you end up before the California Labor Commissioner.
• Review exempt classifications annually.

Bottom line: Even though state law guidance on this is clear, the Labor Commissioner takes a broader view. Protect your business and align exempt salaries with the highest applicable minimum wage.