We are wishing all of you a happy and healthy New Year! See below for a quick refresher on the new minimum wage rate for 2021, and the new lower IRS mileage reimbursement rate. Be sure to update your policies and payroll accordingly.
On January 1, the State’s new minimum wage for all California employers with fewer than 26 employees is increased from $12.00/hour to $13.00/hour. For employers with 26 employees or more, the minimum wage will increase from $13.00/hour to $14.00/hour. Make sure your payroll is ready for this change which will go into effect this Friday.
Overtime Pay Exemption Rate Increases
Note also that a minimum wage hike also affects the minimum compensation that must be paid to retain an overtime exemption under California law. California law sets the minimum monthly compensation for the State’s overtime exemptions at twice the State minimum wage. On January 1st, the new minimum salary for exempt employees in California will increase to $58,240 per year and $4,853.33 per month.
In addition, certain union represented employees may be exempt from the State’s overtime rules where they receive a collectively bargained wage which is 30% above the minimum wage (i.e. $18.20/hour). Check with your legal advisor regarding how federal overtime law impacts this calculation.
Caution: Don't forget that many area cities have their own (typically higher) local minimum wage ordinances that must be followed for businesses which employ workers within those local jurisdictions. This includes employees based elsewhere, but who do some work in the geographical limits of the respective city or county. Check with your legal advisor regarding how these local ordinances impact your business.
For example, as of July 1, 2020 the City of Los Angeles minimum wage was set at $14.25 for employers with fewer than 26 employees and $15.00 for employers with 26 or more employees. On July 1, 2021, the rate for smaller employers (fewer than 26 employees) will rise to $15.00 per hour. Employers must follow these higher rates when multiple rates apply.
As you know, under California Labor Code section 2802, employers are responsible for fully reimbursing employees for all expenses actually and necessarily incurred in performing their job duties. This includes reimbursing employees for the required use of their personal vehicle, including gas, wear and tear, repair, oil, insurance, and other associated costs.
The California Labor Commissioner has ruled that using the Internal Revenue Service ("IRS") mileage rate in calculating these automobile reimbursements fulfills an employer’s obligation in most circumstances, but cautions that actual expenses will have to be reimbursed where an employee can show that that IRS rate is not enough.
IRS issued the 2021 standard mileage rate on December 20th. IRS lowered the rate by 1.5 cents to $.56/mile for cars, vans, pickups and panel trucks for any business miles driven. In getting ready for the new year, you should update your expense reimbursement policies with the new, lower IRS mileage rate.
All of us at the Firm wish you and yours a happy, healthy, and prosperous 2021. Let’s all hope that with the new vaccines, COVID-19 will finally get under control and we may all look forward to some semblance of normalcy in the coming year.
Richard S. Rosenberg
Katherine A. Hren
Stephanie B. Kantor
Ballard Rosenberg Golper & Savitt, LLP