On March 31, 2016, the California legislature approved the nation’s highest statewide minimum wage. SB-3, approved in both the State Senate and Assembly, will increase the state’s minimum wage to $15.00 per hour by 2022. Governor Jerry Brown has already signaled that he intends to sign the bill into law on Monday, April 4, 2016.

The new law will increase the minimum wage for large and small businesses according to two schedules. It will also have the effect of increasing the minimum exempt salary requirement for exempt California employees.

Minimum Wage Schedule for Large Businesses

Businesses employing 26 or more employees must increase their minimum wage rates as follows:

  • January 1, 2017: $10.50
  • January 1, 2018: $11.00
  • January 1, 2019: $12.00
  • January 1, 2020: $13.00
  • January 1, 2021: $14.00
  • January 1, 2022: $15.00

Minimum Wage Schedule for Small Businesses

The minimum wage increases will be delayed by one year for small businesses, i.e. those employing 25 or fewer employees. Such businesses must increase the minimum wage as follows:

  • January 1, 2018: $10.50
  • January 1, 2019: $11.00
  • January 1, 2020: $12.00
  • January 1, 2021: $13.00
  • January 1, 2022: $14.00
  • January 1, 2023: $15.00

Cost-of-Living Increases

After the state minimum wage reaches $15.00 per hour, automatic cost-of-living increases will be required every year, effective on January 1. However, the governor will have the discretion to temporarily suspend annual increases where certain economic factors signify an economic downturn.

Significant Impact on Exempt Salary Requirement

The minimum wage increase will also significantly affect the minimum salary requirement for exempt employees in California. This is because the minimum salary level requires exempt employees to earn at least twice the state’s minimum wage.

Employers may be forced to make significant changes in the way mid- and low-level supervisors and managers are paid. The current minimum salary required for an exempt employee is $41,600 annually. Here is what the annual minimum salary requirement for exempt employees will be in the future:

  • January 1, 2017: $43,680
  • January 1, 2018: $45,760
  • January 1, 2019: $49,920
  • January 1, 2020: $54,080
  • January 1, 2021: $58,240
  • January 1, 2022: $62,400

It is expected that later this year, the U.S. Department of Labor may effectuate regulations increasing the salary level required for full-time employees to qualify for an exemption from the overtime rules to $50,440. That would put California on par with the rest of the country until 2020, at which point the state’s minimum salary requirement would race ahead.

Once again, California marches in the vanguard of a labor movement. It remains to be seen whether other states and local jurisdictions will follow. Efforts are afoot in New York to increase the state minimum wage for fast food workers to $15.00 per hour. A number of cities and counties have also targeted a $15 per hour minimum wage, including Seattle, San Francisco, Santa MonicaLos Angeles, and Emeryville.