Although it is early in 2015, this is the perfect time to start planning for the 2016 increase in the California minimum wage. California increased its minimum wage in a two-step process. The first step was effective July 1, 2014 and raised the minimum wage to $9.00 in California. The minimum wage increase also increases the minimum salary for exempt status. Both of these factors can have large financial impacts for employers and the planning should begin now as the change takes effect on January 1, 2016.
The second step raises the minimum wage to $10.00 per hour effective January 1, 2016. The new California Minimum Wage Posting required to be posted by all employers can be found at. Many companies are receiving mailings from poster companies that look to be government notices saying the company must buy the poster mentioned to be in compliance. Please note that this is a marketing piece and the poster can be obtained free of charge at the site mentioned previously. The new posting was required to be displayed beginning on July 1, 2014.
California employers must also keep in mind that the minimum salary required for exempt status is directly tied to the minimum wage. Today the current minimum salary required for exemption is $37,440. The language in Labor Code Section 515 reads, in part, “The Industrial Welfare Commission may establish exemptions from the requirement that an overtime rate of compensation be paid…, and earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” This means when the minimum wage increases so will the minimum salary required for exemption. Beginning January 1, 2016 the new minimum salary required will be $41,600. It is imperative to understand and remember that paying the minimum salary alone itself will not qualify a position for exempt status, there are also duties and time spent tests that must be met. In addition, all tests must be met in order to qualify for exempt status. This means if a company has positions that currently meet all the tests for exempt status but do not raise salaries to reflect the appropriate minimum salary required for exemption outlined previously those positions will revert to non-exempt status making them overtime eligible.
California employers should begin preparing for these upcoming changes as they do have a substantial financial impact especially to smaller employers.