California Passes Law Increasing the Minimum Wage

A new law increasing California’s minimum wage to $15 per hour applies to all businesses with employees in California – and not just to those employing minimum wage workers.  The law, available here, implements a phased approach to increasing the statewide minimum wage and distinguishes between employers with 26 or more employees and employers with 25 or fewer employees, giving these smaller employers one additional year to “catch up.”  The rate increases are as follows:

Employers with 26 or More Employees

  • January 1, 2017:  $10.50 per hour
  • January 1, 2018:  $11 per hour
  • January 1, 2019:  $12 per hour
  • January 1, 2020:  $13 per hour
  • January 1, 2021:  $14 per hour
  • January 1, 2022:  $15 per hour

Employers with 25 or Fewer Employees

  • January 1, 2018:  $10.50 per hour
  • January 1, 2019:  $11 per hour
  • January 1, 2020:  $12 per hour
  • January 1, 2021:  $13 per hour
  • January 1, 2022:  $14 per hour
  • January 1, 2023:  $15 per hour

The law does contain provisions allowing lawmakers to suspend increases depending on economic conditions.  It also contains provisions requiring that by August 1, 2023, and continuing each August thereafter, the minimum wage be reviewed and potentially adjusted depending on various economic factors, including the national Consumer Price Index.

Employers’ failure to pay their hourly workers at least minimum wage for every hour worked exposes them to substantial liability for unpaid wages and penalties.

Impact on Salaried Exempt Workers.

Increases to the statewide minimum wage also impact whether or not an employee qualifies as “exempt” from the overtime and meal and rest break requirements of California law.  That’s because to be considered “exempt,” employees must earn at least two times the state minimum wage based on a full-time work schedule (defined as             40 hours per week or 2080 hours per year).  This means that as of January 1, 2017, with respect to businesses with 26 or more employees, employees properly classified as exempt under California law must earn an annual salary of at least $43,680, or $840 per week (as of January 1, 2022, the minimum annual salary would be $62,400 assuming the increases are implemented as set forth above), with the exception of (1) Computer Software Employees, who today must earn no less than $87,185.14 per year to be considered exempt, and which amount may increase as of 2017, and (2) certain commissioned salespeople, whose earnings must exceed 1.5 times the state minimum wage per hour worked to be considered exempt.  This is in addition to the fact that exempt employees must spend more than half of their work time engaged in what the lawmakers consider “exempt” duties.  Workers who are misclassified as “exempt” may be entitled to significant unpaid wages and penalties, including for unpaid overtime, missed meal and rest breaks, and paystub violations.

Note that the federal government is currently considering increasing the minimum salary that must be paid to exempt “white collar” employees to approximately $50,000 annually. More information about those proposed changes to federal law is available here.

Cities and Counties, Including the City and County of Los Angeles, Have Enacted Even Higher Minimum Wage Regulations That Must Be Followed.  

Several California cities have enacted even more stringent minimum wage laws, including Los Angeles, Santa Monica, Pasadena, Long Beach, and numerous Northern California cities.  For example, businesses operating within the cities of Los Angeles or Santa Monica that have 26 or more employees must pay a higher minimum wage of $10.50 per hour beginning July 1, 2016 and increasing each year thereafter as follows:

  • July 1, 2016: $10.50 per hour
  • July 1, 2017: $12.00 per hour
  • July 1, 2018: $13.25 per hour
  • July 1, 2019: $14.25 per hour
  • July 1, 2020: $15.00 per hour

Businesses operating in the cities of Los Angeles or Santa Monica that have 25 or fewer employees must comply with the following minimum wage schedule:

  • July 1, 2017: $10.50 per hour
  • July 1, 2018: $12.00 per hour
  • July 1, 2019: $13.25 per hour
  • July 1, 2020: $14.25 per hour
  • July 1, 2021: $15.00 per hour

In determining whether their business is operating within a particular city, employers should look beyond the “city” identified in connection with their physical address.  In general, a business that pays taxes to a particular city is likely covered by that city’s minimum wage ordinance.  Accordingly, not only those businesses with “Los Angeles” addresses are considered part of the “City of Los Angeles.”  To determine if your business is located within the City of Los Angeles, you can visit the City of LA’s Office of Finance website, available here, and type your business address under the prompt at the bottom of the page stating, “Determine if an address is within the City of Los Angeles.”  All Los Angeles employers must also post the notice available here in a conspicuous place accessible to employees.

In addition, the LA County Board of Supervisors voted to implement the same minimum wage schedule applicable to businesses operating in the city of Los Angeles to those businesses operating in unincorporated areas of Los Angeles County.  For the most recent list of unincorporated areas within the County of LA that has been published by the County, click here.  Employers that have employees who spend at least two hours per week in unincorporated areas of LA County should also post the notice available here.  In addition, the LA County Registrar’s website has a tool enabling users to determine whether a particular address is associated with an incorporated city.

For many employers, these new laws will require a reevaluation of existing employee pay structures to ensure legal compliance.  If you would like assistance with this or with any other employment-related matters, please feel free to contact Polina Bernstein or Diana Friedland at (818) 817-7570.

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The above summary has been prepared for general informational purposes only and is not intended as legal advice.  

Bernstein & Friedland, P.C. is a boutique employment law firm in Los Angeles specializing in wrongful termination, discrimination, harassment, retaliation, and unpaid wage and overtime matters.  Please visit our website at www.laemploymentcounsel.com to learn more about us.  

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