Get ready for next year's minimum wage increases (CalChamber).
As 2018 winds down, it’s time to prepare for the minimum wage changes that begin January 1, 2019. A little refresher on how we got here: In 2016, Governor Edmund G. Brown Jr. signed SB 3, making California the first state in the nation that committed to raising the minimum wage to $15 per hour statewide. Under the bill, California’s minimum wage increases annually so it hits $15 per hour for all businesses by 2023.
Large businesses with 26 or more employees began complying on January 1, 2017, and will reach $15 per hour in 2022. The increase in 2019 for large businesses is $1 — from the current rate of $11 per hour to the new rate of $12 per hour. Small businesses with 25 or fewer employees will have until 2023 to reach the $15 per hour rate. The increase in 2018 for small businesses is from the current rate of $10.50 per hour to the new rate of $11 per hour. In the midst of all the statewide changes, various localities throughout California continue to pass their own ordinances that will affect how employees are paid.
Employers should start preparing for these changes ahead of time by examining all pay practices that may be affected.
Minimum Wage
The staggered minimum wage increases over the next several years are as follows:
Date: Employers with 26 or More Employees //
Employers with 25 or Fewer Employees
1/1/19 : $12/hour // $11/hour
1/1/20 : $13/hour // $12/hour
1/1/21 : $14/hour // $13/hour
1/1/22 : $15/hour // $14/hour
1/1/23 : $15/hour* // $15/hour*
*Once the minimum wage reaches $15 per hour for all businesses, 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.
California employers must pay employees no less than the state minimum wage per hour for all hours worked. When laws differ, employers must comply with whichever requirement gives the biggest benefit to the employee. Since California’s state minimum wage is higher than the federal minimum wage of $7.25 per hour, most employers will be required to pay that rate. As mentioned above and discussed further below, local ordinances may also come into play. The obligation to pay the state minimum wage can’t be waived by any agreement, including a collective bargaining agreement.
Remember that a top priority for state enforcement agencies is to stop employers from engaging in so-called “
wage theft
,” which includes not paying the minimum wage for all hours worked.
The minimum wage increase affects not only your nonexempt minimum wage workers, but also has other ramifications, such as how you classify exempt/nonexempt employees, and posters and notice requirements, discussed below. Preparation, as always, is key.
Classifying Employees
Exempt/nonexempt classification is always a tricky issue, as employers must ensure that employees meet the
salary basis test
for the particular exemption claimed. For an employee to meet a “white collar” exemption from overtime (the commonly used administrative, executive or professional exemptions), California law states that the employee must earn a minimum monthly salary of no less than two times the state minimum wage for full-time employment, in addition to meeting all other legal requirements for the exemption.
Effective January 1, 2019:
- The minimum salary rate for the administrative, executive and professional exemptions is $49,920 annually for employers with 26 or more employees.
- The minimum salary threshold is $45,760 annually for employers with 25 or fewer employees.
Also, certain commissioned inside sales employees can be eligible for an overtime exemption under
Wage Order 4
and
Wage Order 7
. Generally, the exemption applies if the employee earns more than 1.5 times the minimum wage, and more than half of the employee’s compensation represents commission earnings. Employers will need to make sure that commissioned inside sales employees continue to meet this test after the January 1 minimum wage increase. Outside salespeople do not need to meet the minimum salary requirements.
Misclassification is costly. Employers who are unsure whether their employees ought to be exempt or nonexempt should always check with legal counsel.
Overtime Rate
The minimum wage rate change also affects
overtime pay
. Effective January 1, 2019, the overtime rate for minimum wage employees increases, but varies depending on whether you’re a large or small business. Below are the overtime and double time rates for an employee who earns exactly minimum wage:
- Employers with 26 or more employees must pay $18 per hour for time and one-half, and $24 per hour for double time.
- Employers with 25 or fewer employees must pay $16.50 per hour for time and one-half, and $22 per hour for double time.
