When it wants to, the California Legislature can act with impressive speed.  It did so last week on a minimum wage increase bill (SB 3)1 when, in less than 96 hours, it amended the legislation and sped it through two committee hearings and two final floor considerations.  On Monday, April 4, 2016, California Governor Jerry Brown signed the bill, which will eventually raise the statewide minimum wage to $15 per hour, into law.  The bill’s proponents said that under this measure, nearly six million California workers—more than one-third of the Golden State’s workforce—will receive a raise.2

The amended law provides for six stepped annual statewide increases of the current minimum wage of $10 an hour, starting on January 1, 2017, for employees working for employers of 26 or more employees. The increases are delayed for one year for employers of 25 or fewer employees.

The increases may be temporarily delayed by the Governor during the six-year phase-in period for state general economic, or state budgetary, reasons.3  The possible delays (called “off-ramps” in the committee reports4) may be used only twice during the phase-in period,5 with the last increase occurring on January 1, 2023.6

Starting August 1, 2022, the California Director of Finance will annually calculate the adjusted minimum wage to be implemented on January 1 of the following year.7 The calculation will be based on a specified formula, which includes a version of the consumer price index (CPI).8  SB 3’s indexing provision allows only increases to the minimum wage – no decreases.9

Governor Brown huddled with legislators and some stakeholders the last weekend in March to reach a deal that included raising the state minimum wage, ditching two labor-backed minimum wage initiatives headed for the November 2016 California general election ballot (one of which had already qualified for the ballot), and extending paid sick leave to the state’s estimated half-million, in-home supportive services workers.

Legislative suggestions for regional minimum wages, such as those passed in Oregon,10 and New York, were not considered for inclusion in the version of the bill that passed in California.11 Thus, under SB 3’s provisions, employers in El Centro will be paying their minimum wage workers the same rate as employers in San Francisco.

Unlike laws passed by some other states,12 SB 3 does not bar counties and cities from enacting their own minimum wages that are higher than the state's minimum wage.

The enactment of SB 3 is expected to result in the withdrawal of the Service Employees International Union (SEIU)-backed minimum wage initiative that already qualified for the fall general election,13 as well as a second initiative on the same subject that had not yet qualified for the ballot.

Last week’s votes in the two committees and in the State Assembly and Senate were along party lines (with a single exception), with Democrats supporting, and Republicans opposing, the bill.  The final legislative floor report identified the “co-sources” of the bill as the SEIU California State Council, the United Food and Commercial Workers, and the Western Center on Law and Poverty.14

Though a significant boost, the new law will not create the first $15-per-hour rate in the state. For example, the City of Los Angeles in 2015 enacted an ordinance to raise the city’s minimum wage to $15 an hour for larger employers by July 1, 2020.15

Who is affected?

The scope of the minimum wage's application is set by the amended statute’s definition of “employer.”16  This definition is more expansive than some of the 22 other existing definitions of the term in the current Labor Code,17 and includes entities that could be considered joint employers.  There are no carve-outs in the definition of an employer for this new amended statute; public sector employers are included.

How much are the increases, and when are they implemented?

The bill sets two minimum wage rates, depending on whether an employer has 26 or more, or 25 or fewer, employees. The increases are delayed for one year for employers of 25 or fewer employees.18

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Can these increases in the minimum wage be delayed for economic reasons?

Yes, but only the Governor can trigger the off-ramps, and only from 2017-2023. In addition, the Governor can only do so twice, based upon specified economic factors and certifications by the California Director of Finance.19  If a minimum wage increase is suspended by this method, subsequent increase dates are postponed for an additional year.20

What about increases in the minimum wage after January 1, 2022?

Beginning in 2022 for employers with 26 or more employees, and in 2023 for employers with 25 or fewer employees, potential annual increases in the minimum wage for the following calendar year will be calculated by August 1 of each year by the Department of Finance.21

Are increases in the minimum wage automatic?

Yes, starting in 2023 for employers with 26 or more employees, and starting in 2024 for employers with 25 or fewer employees, if justified by the economic assessment formulas—unless a future Legislature passes, and the Governor signs, a bill providing otherwise.

When does the bill take effect?

As the bill had no urgency clause, it takes effect on January 1, 2017.

What else is in the bill?

SB 3 fulfilled a promise by the bill's author and supporters of 2013-2014’s AB 1522 to extend the state’s paid sick leave benefits to qualifying in-home supportive services (IHSS) workers, currently exempted from coverage.22 The application of the revised minimum wage takes effect for qualifying in-home supportive services workers on July 1, 2018.23

The amendments to the paid leave law also set out, for IHSS workers only, a new and different definition of the current statute’s term “full amount of leave.” This term now means 8 hours or 1 day of paid sick leave in each year of employment, calendar year, or 12-month period beginning July 1, 2018; 16 hours or 2 days once the minimum wage reaches $13; and 24 hours or 3 days once the minimum wage reaches $15.24

Related changes

In addition to the minimum wage law itself, the increases impact other wage and hour requirements that are based on the state minimum wage.  Some examples:

  • To be exempt from state overtime laws, the salaries of executive, administrative, and professional employees, and private school teachers, must be no less than two times the state minimum wage for full-time employment (i.e., 40 hours per week).25
  • Certain commissioned salespersons’ earnings must exceed one-and-a-half-times the state minimum wage to be exempt from state overtime laws.26
  • Employees paid on a piece-rate basis.27
  • Certain employees, and sheepherders, can be required to provide and maintain hand tools and equipment customarily required by the trade or craft if their wages are at least two times the minimum wage.28
  • Collective bargaining agreement-based exceptions for numerous California laws require that employees’ regular hourly rate of pay not be less than 30% more than the state minimum wage.29

Can the Legislature change any of this before 2022?

Yes.  This is a legislative enactment, not a constitutional amendment.  Thus, any future Legislature can amend, repeal, or otherwise tinker with any of these statutory changes at any time.

What Steps Can an Employer Take Now?

  • Assess whether the business entity is considered an “employer,” especially for employees who may be indirectly employed by the organization.
  • Assess compensation for the new minimum wage's effect on payment of overtime, overtime-exempt employees’ compensation, and salary compression.
  • Update minimum wage posters by the time a new rate takes effect.
  • Inform employees about their new pay rate(s) when they take effect.
  • Train HR, payroll, and managerial employees on increases, posting, and notice requirements, and how to respond to employee inquiries concerning wage rate changes.
  • Be alert to interpretative frequently asked questions (FAQs) and regulations that may be issued by the Department of Industrial Relations on this subject.