Since 2021, California’s minimum wage has been on a path to increasing, gradually over the coming years. In late July 2023, the California Department of Finance announced effective January 1, 2024, the state’s minimum wage is set to increase to $16 per hour.
This change was determined by the California’s Labor Code, which requires that once the state’s minimum wage reaches $15 per hour – which already has occurred (current minimum wage is $15.50 per hour) – the California Director of Finance must determine on or before August 1 of each year whether to adjust the minimum wage for inflation, and if so, calculate the increase.
What You Need to Know
This hourly increase also affects the minimum salary requirements for full-time exempt employees, which currently is $64,480 per year ($5,373.34 per month). Beginning January 1, 2024, the minimum salary for a full-time exempt employee will be $66,560 per year ($5,546.67 per month).
Employers must also take into account that some cities and counties in California have adopted their own local minimum wage rates that are separate from the state rate. If the ordinance where employees are performing work requires a higher minimum wage rate than the state minimum wage rate (such as Berkeley, Los Angeles, Milpitas, and San Francisco, to name just a few), the local rate must be paid. Keep in mind that only the state minimum wage — not local minimum wages — determines the minimum salary requirements for exempt employees.
Further Increases Possible in Near-Future
Looking ahead, a measure that is eligible for the November 2024 ballot would, if passed by California voters, further accelerate the pace of minimum wage increases. If passed, by January 1, 2025, for employers with 26 or more employees, the statewide minimum wage would increase to $18 per hour, and employers with 25 or fewer employees would pay the same wage on January 1, 2026.
Impact to Employers
Over the coming months, employers will want to pay attention to updates related to this increase since there are likely to be other ramifications to follow.
We suggest employers monitor a series of local ordinances that establish minimum wages, higher than the state’s minimum wage. For example, the minimum wage in the City of Los Angeles recently increased to $16.78 per hour.
In addition to auditing employees to determine whether both the duties and salary satisfy the white-collar exemption minimum to $66,560 as stated above, the minimum annual compensation for employees who qualify for the inside sales exemption from overtime will increase from $48,360 to $49,920.
Employers will also need to adjust split-shift premium calculations since they will be impacted by the increased minimum wage. The same is true for rates of pay for meal period premiums, rest period premiums, paid sick leave, and other related items.
The PBO team of trusted HR advisors keeps a watchful eye on ever-changing legislation for our clients. If your business could benefit from our experts in this area to ensure compliance, please reach out to us.
Consulting HR Manager
858-622-1681 ext. 323