On April 4, 2016, Governor Brown signed Senate Bill 3 into law which addresses several issues including an increase of the state’s minimum wage. The minimum wage shall increase as of January 1, 2017 with additional increases through January 1, 2022 when it reaches $15.00 per hour.
STATE OF CALIFORNIA MINIMUM WAGE INCREASE
The timing and amount of the implementation of the minimum wage increase is dependent upon the size of the employer.
Employers with 26 or More Employees
The minimum wage increase for employers with 26 or more employees will take effect as follows:
January 1, 2017 – $10.50 per hour
January 1, 2018 – $11.00 per hour
January 1, 2019 – $12.00 per hour
January 1, 2020 – $13.00 per hour
January 1, 2021 – $14.00 per hour
January 1, 2022 – $15.00 per hour
Employers with Less than 26 Employees
The minimum wage increase for employers with less than 26 employees will be delayed by one year as follows:
January 1, 2018 – $10.50 per hour
January 1, 2019 – $11.00 per hour
January 1, 2020 – $12.00 per hour
January 1, 2021 – $13.00 per hour
January 1, 2022 – $14.00 per hour
January 1, 2023 – $15.00 per hour
SB 3 also provides that after the minimum wage reaches $15.00 any subsequent adjustments to the minimum wage may be made; however, these adjustments will be based on the average rate of change of the federal Consumer Price Index (“CPI”). Any subsequent increases will take effect on January 1 of the following year.
If the average rate of change of the CPI is negative, there will be no increase or decrease in the minimum wage. However, if the CPI increases by more than seven percent, then the minimum wage for the following year will be set based on CPI averages and will be the same for all employees, regardless of the number of employees a particular employer has.
“Employer” Defined For Purposes of SB3
SB 3 defined “employer” as: “any person who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.”
For purposes of this subdivision, “employer” includes the state, political subdivisions of the state, and municipalities.
This definition of “employer” is different than in some other sections of the Labor Code and is intended to include “joint employers”.
AFFECTS OF THE INCREASE ON LOCAL MINIMUM WAGE
Senate Bill 3 does not prohibit counties and cities from enacting their own minimum wages that are higher than the state’s minimum wage.
Los Angeles City and Unincorporated Areas
Employers in the city of Los Angeles and the county’s unincorporated areas will also face a minimum wage increase starting July 1, 2016 pursuant to the Establishment of Minimum Wage in Los Angeles/Ordinance Number 183612.
Employees are specifically defined in the Ordinance as: “an individual who performs at least two hours of work in a particular week within the City of Los Angeles for an employer, and who qualifies as an employee entitled to payment of a minimum wage from any employer under the California minimum wage law.”
Size Matters
Under the Los Angeles Ordinance, the size of an employer’s business or non-profit corporation shall be determined by the average number of employees employed during the previous calendar year.
Employers with 26 or More Employees
The minimum wage increase for employers with 26 or more employees will take effect as follows:
July 1, 2016- $10.50
July 1, 2017-$12.00
July 1, 2018 – $13.25
July 1, 2019 -$14.25
July 1, 2020- $15.00
Employers with Less than 26 Employees
Employers with 25 or fewer employees shall pay a wage of no less than the hourly rates as follows:
July 1, 2017- $10.50
July 1, 2018 – $12.00
July 1, 2019- $13.25
July 1, 2020- $14.25
July 1, 2021-$15.00
Other California cities have also voted to implement minimum wage increase ordinances. Employers with employees in other counties, cities or unincorporated areas of the state of California should verify the relevant minimum wage rates.
No Tip Credit Against Minimum Wage
It is also important to note that the law continues to assert that “tips” may not be used towards minimum wage rates.
Failure to Comply
Failure to comply could include statutory penalties, private or administrative claims for unpaid wages brought by either the California labor commissioner or employees, and liability for employees’ attorneys’ fees and costs.
The City of Los Angeles has published a FAQ which can be found at https://bca.lacity.org/site/pdf/lwo/Los%20Angeles%20Minimum%20FAQ.pdf
SALARY REQUIREMENTS FOR EXEMPT EMPLOYEES ALSO IMPACTED
Because exempt employees are required to earn at least two times the state’s minimum wage, the salary of such employees may also need to be increased to maintain their exempt status.
Under existing law the minimum annual salary required for an exempt employee is $41,600. Once California’s minimum wage reaches $15 per hour in 2022, this minimum annual salary will increase accordingly to $62,400.
The annual salary for exempt employees will increase as follows:
January 1, 2017 – $43,680 annually
January 1, 2018 – $45,760 annually
January 1, 2019 – $49,920 annually
January 1, 2020 – $54,080 annually
January 1, 2021 – $58,240 annually
January 1, 2022 – $62,400 annually
WHAT SHOULD I DO NOW?
- Determine if you are an “employer” under the amended definition;
- Determine if there is any local ordinance that provides for a different/higher minimum wage than the California or Los Angeles minimum wage levels;
- Review your exempt employee salary base to determine if they will be impacted by the minimum wage increase to maintain their exempt status;
- Post new minimum wage posters (once they become available) before the new rate takes effect on January 1, 2017 or January 1, 2018, depending on the number of employees;
- Inform employees about their new pay rate and when they will take effect;
- Update your payroll processing to timely implement these changes.
If we can be of any further assistance and provide any additional guidance on these issues, please do not hesitate to contact Elkins Employment Law.
Elkins Employment Law provides representation to private sector employers on all aspect of their personnel and employment law matters including litigation defense, mandatory supervisor training, employee handbook preparation, employment and independent contractor agreements, compliance audits and best practices.
This Newsletter is intended as a brief summary of employment law. While every effort has been made to ensure the accuracy of the information contained herein, it is not intended to serve as “legal advice,” or to establish an attorney-client relationship. If additional information is needed on any of the topics contained herein, please contact our office. All rights reserved. ©2016.