As we approach 2025, California employers must gear up for a series of significant legal and financial adjustments. These changes range from minimum wage hikes to increased salary thresholds for exempt employees, and they impact various industries across the state. Staying ahead of these updates is crucial to ensure compliance and maintain smooth operations. Here are the top five increases California employers must prepare for in 2025.

1. California’s Minimum Wage Increases

Effective January 1, 2025, California’s minimum wage will increase to $16.50 per hour. While Proposition 32, which proposed raising the minimum wage to $18 per hour, was rejected by voters, employers must still comply with higher rates set by local ordinances. Cities like San Francisco and counties such as Los Angeles often have their own minimum wage requirements, and businesses must adhere to the highest applicable rate.

For more context, read the Los Angeles Times’ analysis on Proposition 32.

2. Increased Minimum Pay for Exempt Employees

California law requires exempt employees to meet both a salary basis test and a duties test. With the state’s minimum wage increasing in 2025, the minimum salary threshold for exempt employees will also rise. Starting January 1, 2025, the annual minimum salary to qualify for the white-collar exemption (executive, administrative, and professional) will increase to $68,640 (or $5,720 per month), up from $66,560 in 2024.

Employers must ensure compliance with these thresholds to avoid misclassification issues. For additional details on exempt employee classifications, see our previous article.

3. Fast Food Worker Minimum Wage Updates

Fast food workers in California saw a significant wage increase to $20 per hour starting April 1, 2024, under AB 1228. This law applies to national fast-food chains with more than 60 establishments nationwide. Beginning January 1, 2025, the Fast Food Council may further increase this rate based on economic indicators such as the U.S. Consumer Price Index.

Employers covered by AB 1228 should stay alert for announcements regarding the 2025 rate and be prepared to implement any necessary changes by January 1.

4. Adjusted Salary Thresholds for Computer Professionals

Certain computer software employees are exempt from overtime requirements under Labor Code section 515.5, provided they meet specific salary thresholds. For 2025, the Department of Industrial Relations has adjusted these thresholds as follows:

  • Minimum hourly rate: $56.97 (up from $55.58 in 2024)
  • Minimum monthly salary: $9,888.13 (up from $9,646.96 in 2024)
  • Minimum annual salary: $118,657.43 (up from $115,763.35 in 2024)

Employers in the tech sector must review compensation plans to ensure compliance with these updated rates.

5. Updated IRS Mileage Rates

The IRS annually adjusts its standard mileage rates, which impact how employers reimburse employees for business-related travel. For 2024, the rates were:

  • 67 cents per mile for business use
  • 21 cents per mile for medical or moving purposes (for qualified active-duty Armed Forces members)
  • 14 cents per mile for charitable purposes (unchanged)

The IRS is expected to announce the 2025 mileage rates in mid-December 2024. Employers should monitor these updates to ensure accurate reimbursement practices. For further details on mileage reimbursement obligations, see our previous article.