We’re over halfway through 2025 — is your business in compliance with California’s salary requirements for exempt employees?
If you haven’t revisited your exempt employee classifications this year, now is the time. California’s most recent increase to the state minimum wage has triggered a significant change in how businesses must pay and classify salaried workers.
At Koegle Law Group, we’ve seen how easily this critical compliance issue can fall through the cracks — especially for small to mid-sized businesses without dedicated HR teams. This blog is your practical guide to understanding the current rules, identifying potential risk areas, and making informed decisions before year-end audits (or lawsuits) catch you off guard.
We have a guide that can help you determine if you are in compliance, get it here
Why This Matters — Right Now
As of January 1, 2025, California increased the state minimum wage to $16.50/hour, which in turn increased the minimum salary threshold for exempt employees to:
$68,640/year
(based on 2x minimum wage, 40 hrs/week, 52 weeks/year)
This change has been in effect since the beginning of the year — and if your salaried employees aren’t meeting that minimum right now, you’re out of compliance.
Quick Refresher: What Is an Exempt Employee?
In California, an exempt employee:
- Is paid on a salary basis
- Does not receive overtime
- Is not required to clock in/out or track breaks
- Must meet both the Salary Test and the Duties Test
Simply labeling someone as “salaried” isn’t enough. If they earn even $1 less than the required minimum, they are legally considered non-exempt — and subject to different wage and hour protections.
The $1 That Could Cost You
This isn’t theoretical. We’ve seen clients accidentally underpay by small amounts — and the consequences can be big:
- Overtime back pay
- Meal/rest period violations
- Penalties for inaccurate wage statements
- Class action exposure
Even your CEO could be deemed non-exempt if their salary doesn’t meet the threshold. This is a real risk — not just for frontline roles, but for leadership and administrative staff, too.
What If Minimum Wage Increases Again?
There is growing momentum to raise California’s minimum wage to $18/hour, which would increase the minimum salary for exempt employees to $74,880/year.
If your team is already cutting it close at $68,640, now is the time to forecast and prepare.
Mid-Year Action Plan: What You Should Do Now
If you haven’t already taken these steps in 2025, it’s not too late — but it’s critical to act quickly.
1. Audit Your Current Salaried Employees
- Are they earning at least $68,640/year?
- Do their job duties match the exempt classifications (executive, administrative, professional)?
2. Identify Risky Classifications
- Anyone hovering near the threshold needs urgent review.
- Use this opportunity to document job descriptions and responsibilities.
3. Decide: Raise Salaries or Reclassify
- If the role justifies it, increase compensation to meet the exempt threshold.
- If not, reclassify as hourly non-exempt and ensure all wage-and-hour policies are updated.
4. Communicate With Employees
- Changes in pay or classification should be clearly explained.
- Train managers on tracking time and compliance requirements for non-exempt roles.
5. Consult with Employment Counsel
- Wage and hour misclassification is one of the most common — and costly — mistakes.
- A quick compliance check with your employment attorney now can prevent major legal headaches later.
What Happens If You Do Nothing?
Waiting puts your business at risk. Whether it’s a wage claim, a Labor Commissioner audit, or an internal HR issue, misclassification can lead to:
- Fines and penalties
- Legal disputes
- Employee distrust
- Reputational damage
Final Thoughts
Now that we’re into the second half of 2025, your business should already be aligned with California’s wage and hour laws — especially when it comes to exempt employee salaries.
If you’re not sure where your business stands, now is the time to take action.
At Koegle Law Group, we specialize in helping business owners and HR professionals stay compliant, reduce risk, and make smart decisions around employee classification and compensation. Whether you need a salary audit, help with reclassification, or simply want to talk through your options, we’re here to help.
Contact Koegle Law Group today to schedule a consultation with our team. We serve businesses with practical, proactive legal advice—because your success is our business.
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