California’s Department of Finance provided a letter to Governor Newsom as required under Labor Code section 1182.12 to reflect the adjustment in the state minimum wage each year. The Department announced that California’s minimum wage will increase by 3.5% to $16.00 per hour for all employers as of January 1, 2024. This Friday’s five reviews how the increase impacts California’s employers:
1. White Collar Exemptions – Salary Requirement Tied to State Minimum Wage
California’s employment laws classify employees into two main categories: exempt employees and nonexempt employees. Federal and state laws exempt certain employees from wage and hour requirements. An exempt employee is an individual who is exempt from any overtime pay or minimum wage requirements. The “white collar” exemptions are: Professional, Executive and Administrative. To qualify as an exempt employee, the employer bears the burden to meet the requirements of a two-part test the employees must meet to be exempt: (1) the salary basis test and (2) the duties test. The salary basis test requires that the employee must be paid a salary that is at least two times the state minimum wage, which will increase as California’s minimum wage increases.
With the increase to the California minimum wage on January 1, 2024, the minimum annual salary to meet the white-collar exemption increases to $66,560 per year, and $5,546.67 per month (increasing from $64,480 per year in 2023). For more information on exempt employee classifications, see our prior article here.
2. Computer Professional Exemption Salary Requirement Increases in 2024
Labor Code section 515.5 sets forth that certain computer software employees are exempt from overtime requirements under the Labor Code. One aspect to meet this exemption is a minimum salary. For 2023, California’s Department of Industrial Relations adjusted the computer software employee’s minimum hourly rate of pay exemption from $50.00 to $53.80, the minimum monthly salary exemption from $8,679.16 to $9,338.78, and the minimum annual salary exemption from $104,149.81 to $112,065.20 effective January 1, 2023. The DIR will be announcing the increase for computer professionals in October 2023.
3. Local Minimum Wage Ordinances
There are over 35 local minimum wage ordinances throughout California. Employers are required to comply with the higher of the state or local minimum wage that applies to them. Many of the local minimum wage rates increase on July 1 of each year, but there still are some that have a January 1 increase date. Employers must carefully review all applicable local minimum wage (and paid sick leave) requirements.
4. Industry Specific Minimum Wages
- Hotel Workers:
In addition to state and local minimum wage rate, some localities also have industry specific rates. The employers should always check their local ordinances that might apply to their workforce/industry. There are some cities that apply specific rates for hotel workers. For example, the City of Long Beach and the City of West Hollywood have adopted ordinances requiring a higher minimum wage for these workers.
- FAST Act – Fast Food Workers:
As we have written about on this blog, on September 5, 2022, California Governor Gavin Newsom signed into law AB 257, termed the Fast Food Accountability and Standards Recovery Act or FAST Recovery Act. The law proposes to establish a Fast Food Sector Council to regulate California’s fast food restaurants and set the minimum wage rate, among other workplace regulations, for the fast food industry. However, the law has been challenged and a coalition, the Save Local Restaurants Coalition, submitted over one million signatures on December 5, 2022, in opposition to the FAST Act and now the bill will be on the November 2024 ballot as a referendum for California voters to decide the fate of the law.
5. Planning For Minimum Wage Increases
As employers start to prepare for 2024, some best practices for ensuring compliance with all minimum wage requirements include:
- Review all exempt employee classifications and specifically list which exemption they qualify for and ensure they are paid the statutorily required salary.
- Develop a chart listing all nonexempt employees by location and ensure compliance with the location where the employee is working.
- Audit your payroll processing company to ensure they are updating the minimum wage and salary payments to employees. Do not rely on your payroll company to know or understand the minimum wage requirements here in California.
Finally, there is an initiative that qualified for the November 2024 ballot that would increase California’s minimum wage to $18 per hour and then increase each year based on the cost of living. Employers will need to continue to monitor this initiative in 2024.