On April 4, 2016, California Governor Jerry Brown signed Senate Bill 3 providing for a gradual increase in California’s minimum wage from $10.00 to $15.00 per hour. The effective dates of the scheduled increases depend on the employer size. For employers with 26 or more employees, the increases will begin on January 1, 2017. For employers with 25 or fewer employees, the increases will begin January 1, 2018. Employer is broadly defined to include “any person who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours or working conditions of any person.”

The minimum wage will adjust annually according to the following schedule:

Click here to view table.

After the last scheduled increase, the Director of Finance will be required to calculate an adjusted minimum wage by August 1 of that year and each year thereafter. The rate of increase will be the lesser of 3.5% or the rate of change in the United States Consumer Price Index for Urban Wage Earners and Clerical Workers.Before these scheduled minimum wage increases can occur, the California Director of Finance must annually make a determination and certify to the Governor and the Legislature that economic conditions can support the increase. The Governor will have authority to temporarily suspend the increase under certain specified economic conditions, but may do so no more than two times.

The implications of these increases extend beyond the hourly minimum wage worker. Employers should also consider the following:

  • Are the salaries of exempt employees sufficient? To meet the California executive, administrative or professional overtime exemptions, an employee must receive a monthly salary that is no less than two times minimum wage for full-time employment (40 hours). The current annual minimum is $41,600, and will increase to $43,680 on January 1, 2017 for large employers.
  • How does this impact inside commissioned sales people? The commissioned sales exemption, which applies to certain industries or occupations, requires that total earnings result in an effective hourly rate that is one and one-half times the state minimum wage, currently $15.00 per hour. This minimum rate will increase to $15.75 effective January 1, 2017 for large employers.
  • What does the increase mean for meal and lodging credits? As the minimum wage increases the minimum wage credits for meals and lodging permitted by the Industrial Welfare Commission Wage Orders are adjusted.
  • What about employees that furnish their own hand tools? Employers are generally required to provide and maintain the tools needed for employees to perform their jobs. Employees may be asked to furnish their own hand tools if they receive at least twice the minimum wage, currently $20.00 per hour, but increasing to $21.00, per hour on January 1, 2017 for large employers.