To qualify as an exempt computer employee under the flsa and california law, the employee must be employed as a systems analyst, computer programmer, software engineer, or in a computer position requiring similar skills, and must have a. New compensation rate for california computer professional. Oct 31, 2018 once again, the california department of industrial relations dir announced rate changes for the computer software employee exemption and the licensed physician and surgeon exemption. Are software and digital products taxable in california. The federal regulations are clear that section a1 still applies to computer professionals, as computer systems analysts, computer programmers, software engineers or other similarly skilled workers in the computer field are eligible for exemption as professionals under section a1 of the act and under section a17 of the act. California s department of industrial relations dir has announced its rate increase for this minimum, effective january 1, 2017. Under california law and wage orders, a computer professional is exempt from overtime compensation if he or she is highly skilled and is proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, or software engineering. Similar to the flsas computer exemption, californias computer exemption excludes employees who work to maintain or repair computers and whose job is highly dependent upon the use of computers or computer software and programs. California has adjusted the minimum compensation rates that computer software employees must be paid to be exempt from state overtime pay requirements. Californias department of industrial relations dir has announced its rate increase for this minimum, effective january 1, 2017.
If you have questions about how any of the above exemption might typically by applied, you can email me a job description to find out whether that position. California announced 2019 exemption rates for computer. Californias computer related exemption is modified labor. Taxable in general, tax applies to the entire amount charged for the retail sale or lease of tangible storage media on which canned or noncustom programs software are recorded, including. In california, employees in the computer software field computer professionals may be exempt from the state overtime requirements and other protections granted to non exempt workers, such as reporting time pay and mandatory meal and rest breaks. California employers association 2020 exemption updates. Sales tax treatment of software is the subject of this weeks map. California announces 2020 compensation rate for computer. There are some additional exceptions to the computer employee exemption in california. Nov 05, 2019 computer professionals must meet all legal requirements to be considered exempt. Classifying computerrelated employees under california. New compensation rate for california computer professional exemption in 2018 october 06, 2017 on october 3, 2017, the california department of industrial relations issued a memo reflecting a 2. The california labor code also exempts certain computer software professionals from overtime and wagehour laws.
The employee must be primarily engaged in work that is intellectual or creative. California software employees exemption rates increase. But doing so through a sales tax on certain software transactions is still a nono in this state. The computer professional exemption can be applied in conjunction with other california overtime exemptions or independently of them. The computer professional employee exemption in california. California introduces new compensation rate for computer professional exemption october 26, 2018 the california department of industrial relations dir issued a memo on october 19 actually published on october 25 reflecting a 4. Californias sales and use tax applies to transactions in tangible personal property, which is defined as any personal property that can be seen, weighed, measured, felt, or touched, or is in any other way perceptible to the senses blacks law dictionary 3738 9th ed. California computer software exemption labor law talk. The courts narrowly construe the computer professional exemption. The california department of industrial relationsdir announced rate changes for the computer software employee exemption and the licensed physician and surgeon exemptions. A closer look at flsas computer professional exemption. It and computer technology workers overtime exemption. Certain computer professionals are exempted from overtime if they are engaged in specific highlevel computer related duties, such as systems analysis or software design. Want to know whether it specialists are exempt from overtime.
Depending on the circumstances, computer programmers, computer systems analyst, software engineers, and other similarly skilled workers can be exempt from overtime under california law as well as the federal fair labor standards act flsa. Californias department of industrial relations dir announced rate changes for the computer software employee exemption and the licensed physician and surgeon exemption. Exemptions from the overtime laws california department of. In certain instances, an employee who fails to meet all four criteria for the computer professional exemption may be qualified under another exemption if his or her managerial or administrative duties satisfy the. California 2020 minimum salary requirement for exempt. Any lease payments due after june 30, 2030 will be subject to the full sales and use tax rate even if the lease began during the exemption period. Does california charge sales tax on licensed software. The california industrial welfare commission wage orders contain a limited computer professional exemption. There are two tests that must be met before an employee is considered an exempt computer professional, one of which is a salary test and the. State of california department of industrial relations office. Employers with exempt computer software employees in california should make sure that they will be paid at or above the new 2018 thresholds to maintain exempt status.
Exempt from order 9, except sections 4, 10, 11, 12, 20, and 22. On october 3, 2017, the california department of industrial relations issued a memo reflecting a 2. Airline employees who work over 40 but not more than 60 hours during the workweek due to a temporary modification in their normal work schedule not required by the employer and arranged at the request of the employee. The minimum compensation required to satisfy the exemption is recomputed every year to account for changes in the cost of living. Employees in the computer software field who are paid on an hourly basis and meet all of the other requirements set forth in the orders. California computer professionals base wage rate jumps 2. Overtime exemptions under california law work lawyers pc. California overtime exemptions exempt vs nonexempt. Computer professional exemption a california guide for employees. This exemption applies to employees who work primarily in computer systems analysis, software or hardware design or computer system or program design or development, and of whom all of the.
The california computer professional exemption bowles law. Ideally, all software purchases should be taxable to final users and exempt for business users. To qualify for the computer employee exemption, an employee must. Similar to the flsas computer exemption, california s computer exemption excludes employees who work to maintain or repair computers and whose job is highly dependent upon the use of computers or computer software and programs. Schrotenboer applying old laws to new technology often results in substantial uncertainty and controversy. Computer employee exemption about the flsa computer exemption. Employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs e. A new law on how to determine whether california workers are employees or independent contractors ics went into effect on january 1, 2020.
California increases 2018 threshold for computer software. To support the california sales and use tax exempt st atus of electronically downloaded software allowed under california regulation 1502f1d, vendor invoices for all purchases made under this agreement must accurately reflect that distribution is solely via electronic download and that no tangible media or documentation will be shipped or. Feb 26, 2012 the computer professional exemption is a relatively new legislation that was added to california state law by s. Depending on the circumstances, computer programmers, computer systems analyst, software engineers, and other similarly skilled workers can be exempt from overtime under california law as well as the federal fair labor standards act flsa applicability of the computer professional exemption for. Instead, states tax some kinds of software and exempt others, based on whether it is customized or offtheshelf and whether it is on cd or downloaded, all silly distinctions for. An employee in the computer software field who is paid on an hourly basis shall be exempt, if all of the following apply. In addition, the sale of custom computer programs prepared to the special order of the customer are exempt from the following taxes. Computer software employee exemption irvine labor laws. Computer employee exemption about the flsa computer. Beginning january 1, 2016, to be exempt from californias overtime pay requirements under the computer professional overtime pay exemption codified in labor code 515.
Nov 5 2019 compensation katie culliton computer professionals must meet all legal requirements to be considered exempt. The computer professional employee exemption under the fair labor standards act flsa does not apply to a health care employers information technology it support specialists, who also are. Computer professional exemption a california employee. Such is the case with the application of sales and use tax laws to transfers of computer software. If you spend more than 50% of your time on analysis and design of software, you might qualify for the administrative exemption. In 1993, the california legislature enacted a california software sales tax exemption for technology transfer agreements tta relating to the transfer of intellectual property, but has never really honored that exemption until the 2011 nortel court ruling. The california department of industrial relations announced the new minimum salary threshold for exempt computer professionals.
Software sales tax california exemption agile consulting group. Oct 30, 2019 as of january 1, 2020, california employers must ensure that compensation rates for computer professionals meet new salary thresholds. The law requires a specific hourly, monthly or yearly salary which is set by the state of california each year. The law requires that a strict new abc test be used to determine whether many california workers are employees or ics for purposes of california employment laws, including those requiring minimum wage, overtime pay, unemployment insurance, workers. California computer professional duties test remains unchanged. In a memo issued on october 29, the california department of. This page describes the taxability of software and digital products in california, including canned software delivered on tangible media, canned software downloaded, custom software delivered on tangible media, custom software downloaded. The computer employee exemption does not include employees engaged in the manufacture or repair of computer hardware and related equipment. Specifically, the courts generally require that to fall within the computer professional exemption an employees primary duty must require theoretical and practical application or highlyspecialized knowledge in computer systems analysis, programming and software. While companies own assets with millions of dollars of embedded software, few companies are maximizing their property tax savings through the embedded software exemption. The compensation rates are adjusted annually for inflation according to the. State of california department of industrial relations. A new law ab5 on how to determine whether california workers are employees or independent contractors ics. Clock is ticking to claim embedded software tax exemption.
With respect to a computer professional exemption, the dol analogously concluded that such exemption did not apply to the it specialist because the primary duty of the employee did not involve the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional. State sales taxes are imposed on transfers of tangible personal. As a result, i have moved a complete discussion of it to its own page which can be found here. Five things every employer with it workers must understand. New 2019 exempt classification rates advocacy california. California introduces new compensation rate for computer.
The computer professional employee exemption in california 2020. Software used to operate exempt manufacturing machinery and equipment is also exempt. As of january 1, 2018, california employers must ensure that compensation rates meet new salary thresholds for computer professionals. The amount of nontaxable embedded software being taxed in california is a staggering number. Now in 2017, california says it is nearly ready to begin issuing refund checks. Find out which occupations are exempt from california s strict new worker classification rules and the conditions for the different exemptions. Exempt and nonexempt employees california chamber of commerce.
While california s sales tax generally applies to most transactions, certain items have special treatment in many states when it comes to sales taxes. Oct 18, 2017 employers with exempt computer software employees in california should make sure that they will be paid at or above the new 2018 thresholds to maintain exempt status. California computer professional salary requirement to. The computer professional exemption has recently been amended by the california legislature. However, section a1 and section a17 of the flsa provide an exemption from both minimum wage. California s sales and use tax applies to transactions in tangible personal property, which is defined as any personal property that can be seen, weighed, measured, felt, or touched, or is in any other way perceptible to the senses blacks law dictionary 3738 9th ed. Once again, the california department of industrial relations dir announced rate changes for the computer software employee exemption and the licensed physician and surgeon exemption.
Computer professional exemption a california guide for. California says no sales tax on certain licensed software with california s current budgetary and fiscal issues, the state has attempted to come up with new ways to increase revenue see my previous blog post on the amazon sales tax. California sales taxation of computer software ronald b. Employees in the computer software field are sometimes exempt for the purposes of overtime compensation. Computer software canned or noncustom programs software sales and leases of tangible storage media containing canned or noncustom software. California s department of industrial relations dir announced rate changes for the computer software employee exemption and the licensed physician and surgeon exemption. As part of its professional employee exemption, california exempts computer employees from it minimum wage and overtime requirements. Call 8889598508 to talk to an employment lawyer at fernandez lauby llp. It and computer technology workers overtime exemption cohelan.