California Legislature introduced and passed a law phasing in state-wide minimum wage increases that will ultimately reach $15.00 per hour by 2022 for large employers and by 2023 for small employers. Specifically, for employers with more than 25 employees, the hourly minimum wage will increase according to the following schedule:

$10.50 on January 1, 2017

$11.00 on January 1, 2018

$12.00 on January 1, 2019

$13.00 on January 1, 2020

$14.00 on January 1, 2021

$15.00 on January 1, 2022

For employers with fewer than 25 employees, the minimum wage will not begin to increase until January 1, 2018. However, it will then increase at the same pace until it reaches $15.00 per hour on January 1, 2023.

Note that the law also contemplates additional, annual wage increases after the final increase to $15.00 per hour is implemented, which could impose significant costs on small businesses. These additional increases are generally tied to consumer inflation and will be determined by the Director of Finance by August 1 each year, with the increase rounded to the nearest ten cents. Additional increases, if any, would become effective the following January 1.

Employers should remember that increases to the minimum wage will also impact the salary level needed for employees to qualify as exempt employees under California law. Specifically, on January 1, 2017, employees must receive a salary of at least $43,680 per year (up from $41,600 for the previous year) in order to qualify as exempt employees. The required salary level will then continue to increase each year as the minimum wage increases, until ultimately reaching $62,300 on January 1, 2022.

Still further, the law also raises the minimum hourly rate needed to qualify under the computer software employee exemption. To qualify for this exemption as of January 1, 2017, employees must receive an hourly rate of at least $42.39 per hour, up from $41.85 per hour. In addition, the minimum monthly salary exemption will increase from $7,265.43 to $7,359.88, and the minimum annual salary will increase from $87,185.14 to $88,381.55.