California’s Gradual Increases in Minimum Wage, to Reach $15.00 Per Hour by January 1, 2022

On April 4, 2016, California jumped on the “living wage” bandwagon when Governor Brown signed Senate Bill-3 (SB-3)  making California one of the first two states in the country to enact a $15 minimum wage.  The other was New York, the measure signed into law by Governor Cuomo on that same day.

The California law follows a trend of minimum wage ordinances now in place for 18 cities and counties in this state.  See our blogs, City of Los Angeles Minimum Wage Increasing Annually from 2016 to 2020,  Oakland Minimum Wage Escalates to $12.55, San Francisco Minimum Wage Escalates to $12.25 on May 1, 2015 and Be Prepared for Statewide and Local Minimum Wage Increases.  Also see UC Berkeley’s compilation of California municipalities with minimum wage laws.

SB-3 will increase the statewide minimum wage 50 cents per hour to $10.50 beginning January 1, 2017 and to $11.00 on January 1, 2018. The rate then increases $1.00/hour each year from 2019 until $15.00 in 2022. The minimum will then adjust annually by the cost of living with a maximum increase of 3.5%.

Businesses with under 25 on payroll do not need to begin complying with the state minimum wage hikes until 2018, but will need to follow any applicable local minimum wage in the interim.

A business operating in more than one city with a minimum wage ordinance is responsible for tracking all these individual laws, potentially obligated to pay employees working in one such city a different wage than in another. Even sending a single employee into an applicable city for one service call could affect his or her minimum wage requirement in the applicable pay period. Such municipal ordinances differ on the minimum numbers of hours worked within city or county boundaries for local law to apply.

These minimum wage hikes may create other new costs for California employers.  For instance, minimum salaries for exempt-from-overtime employees will also increase annually, geared at double the minimum wage for a 40 hour week.  Each hike will also raise the overtime premium, set at 1.5x or 2.0x a worker’s regular rate of pay.  For instance, as of  January 1, 2017, employees receiving minimum wage must be paid at least $15.75 for every 1.5 overtime hour and $21 for double time.  Those overtime rates will be higher for any worker also receiving commissions, certain bonuses and/or piece work in addition to hourly compensation.  See our blog Working Overtime in California.

These rising costs may require businesses to increase the costs of goods and services or to lay off employees or reduce hours to remain viable.

For further information, please contact one of our attorneys Tim Bowles, Cindy Bamforth or Helena Kobrin.

Helena Kobrin, April 20, 2016