Minimum Wage Hike Brings Many Changes for Employers
Although the next increase in the California minimum wage is still six months away, a number of local minimum wage hikes are set to take effect on July 1, 2016.
Employers need to prepare for the minimum wage increase and examine other pay practices that might be affected by the increase.
“California employers need to be aware of a number of changes to the minimum wage,” said Erika Frank, CalChamber vice president, legal affairs, and general counsel. “Many localities throughout California are passing their own minimum wage ordinances and employers must be familiar with those requirements and ensure full compliance.”
Local Ordinances
A number of other cities already have minimum wages that differ from the state minimum wage.
Following is a list of the cities (and one county) that will be increasing the required minimum wage on July 1. Eligibility rules may vary from city to city:
- El Cerrito: $11.60/hour.
- Emeryville: $13/hour for businesses with 55 or fewer employees; $14.82/hour for businesses with 56 or more employees.
- Los Angeles (city): $10.50/hour for employers with 26 or more employees; $15.37/hour for hotel workers. Increase delayed until 2017 for employers with 25 or fewer employees.
- Los Angeles County: $10.50/hour for employers with 26 or more employees. Increase delayed until 2017 for employers of 25 or fewer employees.
- Pasadena: $10.50/hour for employers with 26 or more employees. Increase delayed for employers of 25 or fewer employees.
- San Diego: $10.50/hour (effective July 11 or July 18, whenever election results are certified]).
- San Francisco: $13/hour.
- Santa Monica: $10.50/hour for employers with 26 or more employees; $13.25/hour for hotel workers. Increase delayed to 2017 for employers with 25 or fewer employees.
- Sunnyvale: $11/hour.
A chart listing local ordinances that contain minimum wage requirements, including effective dates and website links, is available to California Chamber of Commerce members on HRCalifornia.com. A number of the ordinances also include paid sick leave requirements.
Nonmembers can sign up for a free 15-day trial of HRCalifornia.
Minimum Wage Increase
In early April, Governor Edmund G. Brown Jr. signed SB 3, a bill that will increase the minimum wage in California to $15 per hour by 2022. The Governor’s action makes California the first state in the nation to commit to raising the minimum wage to $15 per hour statewide.
Large businesses with 26 or more employees will begin complying in 2017 and will reach $15 per hour in 2022. Small businesses with 25 or fewer employees will not be required to begin the scheduled increases until 2018 and will have until 2023 to reach the $15 per hour rate.
Once the minimum wage reaches $15 per hour for all businesses in 2023, wages could then be increased each year up to 3.5 percent (rounded to the nearest 10 cents) for inflation, as measured by the national Consumer Price Index.
Overtime
The state minimum wage rate change affects overtime. Effective January 1, 2017, employees who work for minimum wage and perform work that qualifies for overtime must be paid $15.75 per hour for time and one-half or $21 per hour for double-time.
Classifying Employees
The minimum wage rate change affects the classification of employees as exempt versus nonexempt. For a California employee to qualify under the commonly used administrative, executive or professional exemptions from overtime, the employee must meet the salary-basis test (which means the employee’s salary must be no less than two times the state minimum wage for full-time employment) in addition to meeting all other legal requirements for the exemption.
Under SB 3, that amount will rise from the current annual salary of $41,600 to at least $62,400 for all employers by 2023. This works out to an increased cost to employers of $20,800 per exempt employee from the current salary threshold.
Importantly, employers will also need to pay attention to the new federal overtime rule under the Fair Labor Standards Act. The new rule changes the salary level that must be met before an employee can be exempt from overtime under both California and federal law. There will be periods of time over the next few years where the federal salary threshold is higher than California’s. Employers must comply with the law that gives the most benefit to the employee.
Posters and Notices
The minimum wage rate change affects employer notice requirements.
California employers must post a current official Minimum Wage Order in a conspicuous location frequented by employees. A new notice will be needed for 2017 when the increase takes effect.
California employers must provide each employee with a written itemized wage statement at the time wages are paid. Among other mandatory information, the itemized wage statement must include all applicable hourly rates in effect during the pay period and the corresponding number of hours the employee worked at each hourly rate.
Employers in California must provide nonexempt employees with a written wage notice at time of hire and again within seven calendar days after a change is made to any information in the notice.
