Minimum Wage Increase – Effective January 1, 2018
As a reminder to California employers, the next phase of the minimum wage increase shall take effect January 1, 2018. Businesses should start to review their pay practices now to ensure timely compliance with the increase and how it affects overtime and exempt classifications.
State Minimum Wage Increase
1. Employers with 26 or more Employees:
The increase in 2018 is $.50 from the current rate of $10.50 per hour to the new rate of $11 per hour.
2. Employers with 25 or fewer Employees:
Employers with 25 or fewer employees were provided a one year delay in the implementation of the first increase and that delay carriers over to each subsequent increase. The increase in 2018 is from the current rate of $10 per hour to the new rate of $10.50 per hour.
California Minimum Wage Rate Chart
Local Minimum Wage Ordinances
Many cities and counties have passed their own ordinances providing for a local minimum wage rate that exceeds the state rate. Employers will be required to comply with their local city or county ordinance and pay the higher minimum wage rate for employees working within those specific locales and must display the local ordinance poster.
Impact on Overtime Rate
With each increase in the minimum wage comes an increase in the overtime rate paid to non-exempt employees. Generally in California, overtime is paid for hours worked in excess of 8 hours per day or 40 hours per week. With the minimum wage increase effective January 1, 2018, the overtime rate for minimum wage employees increases but varies depending on the size of the business:
California Overtime Rate Chart
Impact on Exempt Status Employees
For an employee to be exempt, they must meet the: (a) salary test and (b) the duties test. For an employee to meet the “salary test” for the “white collar” exemption from overtime (e.g. the administrative, executive or professional exemptions), the employee must earn a minimum monthly salary of no less than two times the state minimum wage for full-time employment.
With the minimum wage increase, the minimum salary for an exempt employee as of January 1, 2018 will be:
Minimum Threshold Salary Level For Exempt Employees Chart
Impact on Overtime Exemption for Commissioned Employees
Under Wage Order 4 and 7, certain inside sales employees can be eligible for an overtime exemption if they earn a commission. The test is whether the employee earns more than 1.5 times the minimum wage and more than half of the employee’s compensation represents commission earnings. For those inside sales personnel earning a commission, to maintain the overtime exemption, employers may need to adjust the compensation structure to ensure that commissioned inside sales employees continue to meet this test after the January 1 minimum wage increase.
(The salesperson exemption does not apply to outside salespeople who do not need to meet the minimum salary requirements).
Draws Against Commissions Must At Least be Equal to Minimum Wage
When an employee is provided an advance or “draw” against the employee’s future commission earnings, 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). Employers with commissioned employees should make certain that any draw against future commissions uses the new minimum wage rate as a basis.
The minimum wage increase also affects piece-rate employees. Piece-rate workers must receive at least the minimum wage for each hour worked. A law that took effect in 2016 requires payment of rest and recovery periods or other non-productive time at specified hourly rates. Employers with piece-rate compensation systems need to ensure they are complying with the new minimum wage standard.
The most recent publication of the state’s official Minimum Wage Order MW-2017 includes the increase for both 2017 and 2018. This poster must be posted in a conspicuous place in the place of employment accessible to all employees. Click Here for the current poster.
Notice of Increase & Changes on Wage Statements to Non-exempt Employees
California employers are required to provide nonexempt employees with a wage notice pursuant to Labor Code Section 2810.5. (The Wage Theft Protection Act Notice). The written notice must be provided at the time of hire and again within seven calendar days after any information in the notice is changed. Employers are required to notify nonexempt employees, in writing, when there is any change to:
* The employee’s rate of pay;
* Any overtime rates of pay; and
* Any allowances, such as meal or lodging allowances, claimed as part of the minimum wage (Labor Code Section 2810.5).
If an employee’s rate of pay will increase resulting from the minimum wage increase on January 1, 2018, the employee must receive notice by January 7, 2018 reflecting the new rate of pay, the new overtime rate and any meal or lodging allowance.
Itemized wage statements will need to reflect any increased wages due to the minimum wage increase. (Labor Code Section 226). And if the employer has reflected the change on a timely itemized wage statement and the statement meets all legal requirements, the employer need not provide a new Wage Theft Protection Act notice.
Tools or Equipment
If an employee is required to use their own hand tools and equipment customarily required by the trade or craft in which they work, the employees must earn at least two times the minimum wage rate in effect. These employee’s rates of compensation may need to be adjusted with the new minimum wage rate.