As of July 1, 2014, the Minimum Wage in California Increased to $9 Per Hour

California’s minimum wage increase to $9 per hour is the first increase since Jan. 1, 2008, when the minimum wage reached $8 per hour. California employers are advised to review the compensation and benefits of their hourly and exempt employees and work with legal counsel to ensure compliance with the new rate. Attorneys in Gordon & Rees’s Labor & Employment Practice Group are available to assist employers with any questions or concerns about the increase and its effects on multiple aspects of wage and hour law.

Overtime and Double-Time Rates, Vacation Pay, Reporting Time Pay, and Meal and Rest Break Premiums Increase Accordingly

All employers who pay minimum wage to their employees are required to increase their overtime rates. The overtime rate for any hours in excess of eight in one day, or 40 in one week, increases from $12 per hour to $13.50 per hour. The double-time rate – for any hours in excess of 12 in one day – increases to $18 per hour.

Any other type of pay or benefit based on the employee’s hourly wage increases as well. For example, California employers must pay a premium of one hour of pay for a missed meal period or missed rest break. Such a premium for any minimum wage earner now is $9 rather than $8. If employees receive vacation pay based on their hourly rate, their vacation pay increases. Reporting time pay – two hours or four hours depending on the circumstances – increases for minimum wage employees as well. Employers are advised to conduct a comprehensive review of their time and payroll systems to ensure that the new minimum wage rate is properly incorporated, especially into any automated systems that automatically use $8 per hour as a base rate of pay.

Employers should also be aware that the minimum wage increase impacts minimum salary requirements for certain “exempt” employees.

Exempt Executive, Administrative, and Professional Employees Must Now Earn at Least Twice the Minimum Wage, or $37,440 Annually

The Industrial Welfare Commission (IWC) regulates wages, hours and working conditions in California. The IWC promulgates wage orders for each industry governing various wage and hour issues. The applicable wage order for each industry sets out the job duties and salary criteria for an employee to be properly classified as “exempt.” If employees meet the job duties and salary criteria, the employer is entitled to treat these employees as “exempt” from the requirement to pay overtime, to provide meal and rest breaks, and certain other wage requirements.

The wage orders generally include three types of exemptions – executive, administrative, and professional. The criteria for the executive, administrative, and professional exemptions in the wage orders are highly specific, and a full discussion of them is beyond the scope of this article. In addition to the criteria regarding duties, the executive, administrative, and professional exemptions require that an employee earn at least two times the state minimum wage to be properly classified as exempt.

An exempt employee is not paid on an hourly basis. An exempt employee earns a salary that does not change based on the number of hours she works. If she leaves early for the day, or stays late, her salary is unaffected. However, because the minimum wage is increasing, the corresponding minimum salary for any exempt employee under the exemptions increases as well:

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On Jan. 1, 2016, the Minimum Wage Will Increase to $10 Per Hour

All employees earning minimum wage must earn no less than $10 per hour, beginning Jan. 1, 2016. Like the current increase, this future increase will affect pay and benefits for hourly as well as exempt employees.

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As of Jan. 1, 2014, Penalties for Failure to Pay Minimum Wage Increased

As of Jan. 1, 2014, the California Legislature amended the Labor Code to expand penalties for employers paying below minimum wage. Assembly Bill 442 allows employees to recover liquidated damages on unlawfully paid wages in addition to the already existing civil penalties and restitution remedies.