On April 4, 2016, California Governor Jerry Brown signed legislation progressively increasing the state minimum wage to $15.00 per hour, and indexing future increases to inflation. The bill staves off a more aggressive ballot measure that included a faster increase and contained no mechanism for the governor to delay implementation if economic conditions made it necessary to do so.

Substantive Changes

Minimum Wage Increases

For employers with 26 or more employees, the minimum wage will increase in accordance with the following schedule:

January 1, 2017 – $10.50 per hour.

January 1, 2018 – $11.00 per hour.

January 1, 2019 – $12.00 per hour.

January 1, 2020 – $13.00 per hour.

January 1, 2021 – $14.00 per hour.

January 1, 2022 – $15.00 per hour.

These same rates apply to employers with fewer than 26 employees, although they are each delayed for one year (e.g., $15.00 per hour effective January 1, 2023). Once small employers are subject to the $15.00 minimum (scheduled in 2023, subject to adjustment based on certain inflation targets), the wage for all employers will increase on January 1 of each year based on the consumer price index (with a maximum annual increase of 3.5 percent).

“Off-Ramp” Provisions

The legislation contains “off-ramp” provisions that allow the governor to pause scheduled increases (excluding the initial $10.50 increase) based on economic and budgetary conditions. The governor can halt a scheduled increase in the following circumstances:

  • If job growth during a specified three- or six-month period preceding the scheduled increase is negative and retail sales tax receipts for a specified 12-month period preceding the scheduled increase are negative. 
  • If the state in the then-current budget year or either of two subsequent years is forecasted to be in deficit when including the next scheduled increase.

The governor can use the “off ramp” authority only twice. Once the minimum wage reaches $15.00, the governor cannot stop inflation-based increases.

What This Means for California Employers

California employers should prepare for these minimum wage increases, which will go into effect on January 1, 2017. In particular, exempt employees in California must generally earn a minimum salary of no less than twice the state minimum wage for full-time work (presently $3,466.67 per month). Thus, the increase in the state minimum wage will also cause an increase in the minimum salary requirement for exempt employees. Employers may want to review and, if necessary, appropriately adjust the salaries of their exempt employees to avoid sacrificing their exempt status.