Legal Alerts

Minimum wage increases will be incremental, starting in 2017 for larger employers, 2018 for smaller employers

This week, Governor Brown signed Senate Bill 3 into law. SB 3 will raise the State’s minimum wage for hourly workers from $10 an hour to $15 an hour, impacting not only an estimated 2.2 million Californians that are currently paid minimum wage, but other hourly workers that are compensated more than the minimum wage and some overtime exempt salaried workers as well. The $5 per hour increase will translate to a $10,400 difference in annual income for full-time employees making minimum wage.

Employers are not expected to provide the increase overnight. Rather, the increase will be incremental (see below). Larger employers (more than 25 employees) must provide the first increase by January 2017 and reach $15 by January 1, 2022. Smaller employers (25 or fewer employees) have a similar five-year timeline, but have an additional year to prepare for the change. Small employers must provide the first increase by January 1, 2018 and reach $15 by January 1, 2023.

SB 3 Scheduled Wage Increases (If No Increases Are Paused)

Notably, SB 3 authorizes the Governor to pause scheduled increases if particular economic (negative job growth and negative retail sales) or budgetary (projected deficit) conditions are met. If the Governor does not pause any scheduled increases, all employers must reach $15 in 2023. At that point, SB 3 allows for annual indexing for inflation. The State Director of Finance will increase minimum wage by either 3.5% or the rate of change in the Consumer Price Index for Urban Wage Earners and Clerical Workers if the rate of change is less than 3.5%. However, if the rate of change in the CPI-W is negative, then there will be no adjustment; that is, a negative rate of change in the CPI-W will not decrease minimum wage.

While SB 3 directly affects hourly workers’ wages, it may impact exempt employees as well. Under California law, employers must pay exempt employees a salary that is double the annual income for full-time work at the minimum wage. Starting in January 2022 (large employers) and January 2023 (small employers), the annual income for full-time work at minimum wage will be $31,200. Based on that figure, employers must provide exempt employees with a minimum salary of $62,400 or forego exempt status for those employees and comply with overtime requirements. 

California employers will have at least half a year to provide the first increase. However, there is a proposed federal regulation pending that would impact the minimum salary for exempt employees. It is anticipated to take effect before the end of the year and may alter the timeline of SB 3. BB&K is monitoring the pending federal regulation and will report any updates.

If you have questions about the new minimum wage requirements, contact the attorney authors of this Legal Alert listed at the right in the firm’s Labor & Employment practice group, or your BB&K attorney.

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Disclaimer: BB&K Legal Alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.