under California law and be on the hook for unpaid overtime wages, meal-and-rest period premiums and related penalties. 2 IGNORING ADJUSTMENTS TO THE STATE MINIMUM WAGE Here’s another key difference under the EAP exemptions: Under federal law, these white-collar exemptions generally require a salary of at least $684 per week. California, however, ties the threshold to the state minimum wage and requires exempt employees to earn at least two times the state minimum wage for full-time work. That means California’s minimum exempt salary changes whenever the state minimum wage changes. For example, California’s statewide minimum wage was raised to $16.90 in 2026. Therefore, the salary threshold for EAP-exempt positions also increased to $70,304, based on a 40-hour workweek. Employer Impact: California’s statewide minimum wage regularly increases, typically in January. You’ll need to monitor these changes even if you don’t employ minimum wage workers to ensure compliance with the exempt salary threshold. 3 MISCLASSIFYING EMPLOYEES AS OUTSIDE SALES PROFESSIONALS California’s outside sales exemption also has some important distinctions from federal law. As with the EAP exemptions, rather than simply focusing on the employee’s primary duties, the outside sales exemption is quantitative and applies to an employee who “customarily and regularly works more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.” Employer Impact: Relying solely on job titles or general sales responsibilities is a liability risk, and employers may face misclassification claims for the failure to pay minimum wage, unpaid overtime, unpaid meal-and-rest period premiums and related penalties. 4 MISUNDERSTANDING CALIFORNIA’S UNIQUE EXEMPTIONS The Golden State has additional exemptions to overtime pay that differ from the federal level. For example, California’s wage-order guidance says inside sales professionals who work in professional, technical, clerical, mechanical and similar occupations, as well as certain positions in the mercantile industry, are exempt from overtime when their earnings exceed 1.5 times the minimum wage and commissions make up more than half of their pay. Employer Impact: The calculations can be complicated. It’s best to regularly audit your commission structures and pay data to ensure compliance, because misclassifying employees under these rules can result in costly litigation. 5 USING THE WRONG TEST TO DETERMINE INDEPENDENT CONTRACTOR STATUS Up until this point, we’ve been talking about exemptions from minimum wage and overtime pay. But independent contractor misclassification is also a major compliance challenge in California. When it comes to determining whether an independent contractor is in business for themselves or an employee of a certain entity, the federal government and California use dramatically different tests. California has a much stricter approach compared to the federal DOL, which presumes a worker is an employee unless a hiring entity can meet three factors. California’s ABC test requires the employer to prove the worker is: • free from control and direction; • performs work outside the company’s usual course of business; and • customarily in an independently established trade or business. But the analysis doesn’t stop there. California’s worker classification test has carve-outs and exemptions for certain industries and positions, such as real estate agents, physicians, accountants and engineers. Those exemptions allow state agencies and courts to apply a more flexible common law test, so be sure to contact legal counsel to determine whether your industry may be subject to one of these exemptions. By comparison, the federal DOL uses a broader “economic realities” analysis that considers multiple factors across the entire working relationship. Under federal law, the DOL’s approach asks whether the worker is economically dependent on the business or operating their own business, using a multi-factor totality-of-the-circumstances test. The Trump administration recently proposed a rule that is expected to generally make it easier for businesses to hire contractors and reduce misclassification risks. The test proposed by the DOL’s Wage and Hour Division considers five factors, placing greater weight on: • the individual’s control over the work; and • their opportunity for profit or loss. If a worker’s status isn’t clear based on those two core factors, the proposal instructs businesses to look at: • the amount of skill required for the work; • the degree of permanence of the working relationship between the individual and the potential employer; and • whether the work is part of an integrated unit of production. Fisher Phillips will be monitoring updates closely as the DOL reviews comments and finalizes its updated independent contractor rule. However, even if the federal government issues a business-friendly rule, California companies will still have to comply with the stricter and more controversial state ABC test. 24 SAN DIEGO DEALER
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