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California’s Minimum Wage Increase: The Impact May Be Broader Than Employers Think

January 15 2016

By: Melissa M. Whitehead

Effective January 1, 2016, California has increased its minimum wage from $9 per hour to $10 per hour. This is the second increase to the state minimum wage in the past year and a half. Remember, the obligation to pay minimum wage cannot be waived by any agreement, including collective bargaining agreements.

Employers must examine all pay practices that may be affected by the minimum wage increase – and there are almost certainly more practices that may be impacted than you may think! For example, in addition to increasing the pay of any employees being paid a minimum wage rate, employers should review the following pay practices, which may be affected by the minimum wage increase:

  • Overtime rates of pay: Employees who work for minimum wage and perform work that qualifies for overtime wages must now be paid $15 per hour for time and one-half (previously $13.50 per hour) or $20 per hour for double-time (previously $18 per hour).
  • Exempt/Nonexempt classifications: In California, exempt employees generally must (among other things) earn no less than twice the state minimum wage for a full time employee. This now means that employees must earn a salary of $41,600 per year (or $800 per week) to qualify as exempt employees (in addition to an examination of requirements).
  • Meal and lodging credits: Most of California’s Wage Orders allow employers to credit meals and lodging furnished by the employer toward the employer’s minimum wage obligation. The new credit amounts for meals and lodging are listed on the official Minimum Wage Order (MW-2014).
  • Commission issues: A commissioned employee can receive a sum of money that is intended as an advance, draw or guarantee against the employee’s expected commission earnings. In California, employers must pay these sums at least twice per month. If an employee receives a draw against commissions to be earned at a future date, the “draw” must be equal to at least the minimum wage and overtime due to the employee for each pay period (unless the employee is exempt).
  • Notice requirements: Mandatory minimum wage postings, itemized wage statements, and wage notices will all be affected.
  • Piece-Rate Employees: Piece-rate workers must receive at least minimum wage for each hour worked. Separate legislation effective January 1, 2016, requires payment of rest and recovery periods or other nonproductive time at a specified hourly rate. [NOTE: Employers with piece-rate employees are advised to consult with an experienced labor and employment attorney to review their piece-rate policies in light of recently enacted legislation, which imposes significant restrictions and obligations on piece-rate compensation policies.]
  • Tools/Equipment: Employees whose wages are at least two times the minimum wage can be required to provide and maintain hand tools and equipment customarily required by the trade or craft in which they work.
  • Subminimum wage: The subminimum wage for “learners” increased effective January 1, 2016, from $7.65 per hour to $8.50 per hour (85% of the state minimum wage).

This list is not intended to be all-inclusive, but is intended to alert employers the broad impact of the change in California’s minimum wage. This article does not address proposed changes to the federal minimum wage (expected to be decided in Spring 2016) or minimum wage raises in specific cities/counties. Because of the complexity of these issues, it is recommended that employers consult with experienced labor and employment counsel to ensure that all pay policies and practices are in compliance with the applicable minimum wage laws.