Posted on March 5th, 2018
As an employer, it’s important to keep up with changes to minimum wage laws in California.
That is because even if you are running a small business in California it requires you to navigate a complex set of employment laws.
Sick leave, maternity leave, California specific overtime requirements and workers compensation are just a few things you have to deal with.
But one of the most critical and expensive for any business owner is the minimum wage laws in California.
Use our guide to make sure you have a firm understanding of what is required by both the federal government and the State of California.
Federal vs. State
The current U.S. federal minimum wage is $7.25 an hour for nonexempt employees. Tipped employees are required to be paid $2.13 an hour so long as their tips make up the difference to the regular wage.
The federal minimum wage law was written as a floor. The law states that in cases where there is both a state and federal law the higher rate will prevail.
California of course has consistently had a higher minimum wage than federally required for years. You need to make sure you know what that is at all times so you are not hit with a wage and hour violation.
Minimum Wage Laws in California
In 2016 California amended their minimum wage laws significantly. A rolling enaction was put into place that would begin raising the minimum wage over the course of six years.
On January 1, 2017, companies with more than 26 employees saw the first changes. The minimum wage rose from $10 an hour to $10.50 an hour. This process began for smaller companies on January 1, 2018. The first two years would see 50c raises while every year after that would see $1 raises.
These raises will culminate with a $15 minimum wage in 2022 and 2023 respectively. Afterwards, the minimum wage will be pegged to the inflation rate and rise accordingly. The maximum yearly raise based on inflation will be 3.5%.
Both adults and underage wage earners are required to be paid at the same rate. There can be no reduction of the minimum wage for an employee based on tipped status or other earnings. This is a significant change to the federal law, with more than a sevenfold increase in tipped minimum wages.
When the State of California modified its wage laws, it also enacted a mandatory, statewide retirement savings program.
This is called the California Secure Choice Retirement Savings Program. It will be offered to employees at any company with five or more employees that do not already offer a retirement savings program.
How Employees Are Classified
Many employers are probably wondering how many employees they have under the new minimum wage laws in California. Figuring out exactly who is counted as an employee and who is a contractor or other non-employee can be difficult.
This is covered by California Labor Code section 1182.12. It states that any person who performs labor for an employer and receives compensation who is not a bona fide contractor is an employee. This includes executives, hourly earners, salaried employees, minors and trainees.
But California is extremely reluctant to call anyone an independent contractor! It can be tempting to shoehorn an employee into independent contractor status but don’t kid yourself. If you have to one day prove they truly are that status you want to make sure they fit the tough criteria standards.
The 11182.12 section also contains language explaining how a company that fluctuates between 25 and 36 employees should compensate its employees.
If at any time during the year an employer has 26 or more employees they must pay the higher rate for the year.
Regular employment audits should be expected throughout the implementation of this new law.
If you would like us to do a complete onsite audit of your business to make sure you are in compliance just contact us to set that up.
Exempt Employees
All employees who are paid an hourly wage fall under the minimum wage laws in California. Some employees being paid a set salary may also find themselves covered under the new law.
California has very strict laws regarding exemption as compared to the FLSA. In order to qualify as an exempt employee in California, an employee must be paid at least double the minimum wage.
On a year by year basis the minimum monthly salary for classification as an exempt employee will be:
- 2017 – $3,640
- 2018 – $3,813.33
- 2019 – $4,160
- 2020 – $4,506.67
- 2021 – $4,853.33
- 2022 – $5,200
This has serious implications for employers. Exempt status, of course, means that an employee is not eligible for overtime pay based on their yearly income and the type of work they perform. With the increase in the California minimum wage employers will have to raise the salary of many of their exempt employees alongside that paid to wage earners.
This has significant implications to employer bottom lines, as California’s overtime laws are significantly more expensive than federal ones.
Any nonexempt employee who works more than eight hours in a day or 40 hours in a week is entitled to overtime pay for that period.
Notification Requirements
The Wage Theft Protection Act requires notices of labor standards and minimum wages upon a nonexempt employees hiring. These are also required to be kept up to date with changing minimum wage laws in California. This means that each employee must receive a new form every time a new wage goes into effect.
The State of California provides an easily fillable form that allows employers to quickly create copies for each of their employees. It is important to keep in mind the overlapping wage requirements of your business. All federal, state and local wage laws must be compared when putting the overall minimum wage into the form.
Minimum Wage Preemptions
California follows the example set under federal wage law in regards to conflicting minimums. Cities, towns and counties in California can set their own minimum wages.
If these local minimums are higher than the state or federal minimum they become the required wage. Several cities and counties in California have used this law to set current minimum wages as high as $15 dollars.
As an example, any business residing in Sunnyvale would already be required to pay their employees at the same rate state law will require in 2023.
It’s very important to check your local government as well as state law when setting your employee’s pay rate.
Protecting Yourself
Now you know what the new minimum wage laws in California are and some of the most serious effects they will have on business. It’s important to go ahead and begin preparing for the increased labor costs you must bear as this law goes into effect.
Creating a thorough plan for these changes is essential for the survival of your business and its continued success.
If you would like to consult with the experts when it comes to California labor and wage law, check out the services we offer.
