A new year means new changes to California's minimum wage laws. California employers should take note of the following changes to state and local minimum wage laws—set to take effect on January 1, 2021—that will impact both nonexempt and exempt employees.

2021 California State Minimum Wage Law

On January 1, 2021, California's statewide minimum wage will increase to $14 per hour for employers with 26 or more employees, and $13 per hour for employers with 25 or fewer employees. But note, as described below, some local ordinances have higher minimum wage than the state law and some local ordinances eliminate any distinction in minimum wage based on employer size.

This latest increase will move California one step closer to its goal of a $15 per hour minimum wage. In 2016, California enacted legislation setting forth gradual increases in the minimum wage until 2023; the minimum wage in California will continue to rise each year on a statewide basis until it reaches $15.00 per hour.

2021 California Local Minimum Wage Ordinances

In addition to California's statewide minimum wage increase, many cities and counties have enacted their own minimum wage ordinances that exceed state requirements. If a local minimum wage rate is more generous to employees than the state minimum wage rate, employers must comply with the local law.

The charts below show changes to local minimum wage rates throughout California set to take effect on January 1, 2021, and July 1, 2021.

*Determining which employers fall within the city and county of Los Angeles can be tricky. Government websites showing the boundaries are available herehere, and here.

Effective July 1, 2021

*As of July 1, 2021, the City of Los Angeles will make no distinction between smaller or midsize businesses. Only one minimum wage rate applies.

2021 California Salary Increases for Exempt Employees

For individuals to qualify as exempt employees, California requires that:

  • They perform exempt duties more than 50 percent of their work time; and
  • Exempt executive, administrative, and professional employees earn a salary of no less than two times the state minimum wage for full-time employment. The minimum annual salary is based on the current state minimum wage, calculated as follows: (minimum wage x 2) x 2,080 hours.

Effective January 1, 2021, the minimum salary threshold for these exemptions is as follows:

  • $58,240 per year (or $1,120 per week) for employers of 26 or more employees.
  • $54,080 per year (or $1,040 per week) for employers of 25 or fewer employees.

California's increased minimum wage will also impact commissioned inside salespeople. Under California law, commissioned inside salespeople are exempted from the state's overtime laws if the employee earns more than 1.5 times the state minimum wage and more than half of the employee's compensation represents commission earnings.

Thus, in order to maintain their exempt status, commissioned inside salespeople will need to earn more than $21 per hour (26 or more employees) or $19.50 per hour (1-25 employees).

Key Takeaways

Employers should be sure to comply with both state and local minimum wage laws. Where a local minimum wage rate exceeds the state minimum wage rate, employers must comply with the local rate.

Employers should review compensation for exempt employees to ensure that the applicable salary threshold is satisfied. Where the salary threshold is not satisfied, the employer should consider whether to increase compensation to meet the salary threshold or reclassify the employee as nonexempt.