As in the prior several years, the California minimum wage shall increase effective January 1, 2020.
Increase Is Dependent on Number of Employees
The amount of the increase is dependent on the number of employees. However, determining the number of employees is not always easy as it can fluctuate from time to time. It can also include personnel retained through a staffing agency.
The Labor Commissioner has provided the following guidance on determining the number of employees:
Any individual working for compensation should be counted as an employee for purposes of determining which wage rate applies, regardless of the number of hours worked or the geographic location. This includes counting part-time workers, new hires and exempt employees.
- Workers obtained through a staffing agency should be counted along with other direct hire workers;
- All individuals under an employer’s control should be counted as employees for purposes of determining the applicable minimum wage rate;
- If the number of employees fluctuates during the year, due to seasonal work or other fluctuations in staffing, it is important to make the correct determination of the employee size for proper compensation. This determination could be very case specific and the Labor Commissioner or a court likely will look at the facts during the pay period in which an alleged underpayment occurred.
The Labor Commissioner’s guidance also provides:
- If an employer reaches the threshold of 26 employees at any point in a pay period, the employer should compensate workers at the higher minimum wage rate for the duration of the entire period.
- If your workforce increases to 26 or more employees at any time during a pay period, you should apply the large-employer rate to all employees for that pay period.
- If your workforce drops below 26 employees and you decide to lower the wage, you must give advance notice before reducing wages, and you must provide the information on the pay stub.For example, if the workforce drops below the 26-employee threshold in the middle of a pay period and the employer wants to pay employees at the lower minimum wage rate, the Labor Commissioner states that it would not be appropriate to reduce the employees’ rate of pay until the following pay period, and only after providing the required notice to the workforce by issuing a revised Labor Code Section 2810.5 Wage and Employment Notice to Employees. (CLICK HERE FOR A COPY OF THE FORM).
Minimum Wage Increase Impact On Exempt Salary Status
Another impact on the increase of the minimum wage rate is the corresponding increase to the salary of exempt employees. One of the factors to consider in determining exempt status is the “salary basis” test which requires that exempt employees be paid at least double the state’s minimum wage rate.
The table below sets forth the exempt salary levels.
Dates |
Employers With 26+ Employees |
Exempt Salary Threshold |
Employers With 25 or Fewer Employees |
Exempt Salary Threshold |
| 1/1/19 | $12/hour | $4,160/month $49,920/annual | $11/hour | $3,813.33/month $45,760/annual |
| 1/1/20 | $13/hour | $4,506.67/month $54,080/annual | $12/hour | $4,160/month $49,920/annual |
| 1/1/21 | $14/hour | $4,853.33/month $58,240/annual | $13/hour | $4,506.67/month $54,080/annual |
| 1/1/22 | $15/hour | $5,200/month $62,400/annual | $14/hour | $4,853.33/month $58,240/annual |
| 1/1/23 | $15/hour* | $5,200/month $62,400/annual | $15/hour* | $5,200/month $62,400/annual |
These increases will continue automatically until the minimum wage rate reaches $15 per hour, after which time, the minimum wage rate could be increased annually by up to 3.5% for inflation as measured by the national Consumer Price Index.
Minimum Wage Increase Impact on Overtime Rates
When the minimum wage increases, the non-exempt overtime rate increases as well.
Employers With 26+ Employees |
Employers With 25 or Fewer Employees |
| Overtime Rate at 1.5x Rate($13.00 x 1.5 = $19.50) | Overtime Rate at 1.5x Rate($12.00 x 1.5 = $18.00) |
| Double Overtime Rate at 2x Rate($13.00 x 1.5 = $26.00) | Double Overtime Rate at 2x Rate ($12.00 x 2x = $24.00) |
Fixed Salaries and Nonexempt Employees
If non-exempt employees are compensated at a fixed weekly salary, which includes payment for a certain number of hours of work per day and per week, the payment of the fixed salary will only be considered payment for the employee’s regular, non-overtime hours. (Labor Code section 515(d)(2)). If a fixed salary is paid and the non-exempt employee works 45 hours per week, the non-exempt employee continues to be entitled to payment of overtime for the 5 additional hours.
Local Minimum Wage Ordinances
As we have reported previously, many cities and counties throughout California have their own local minimum wage rates. If a local ordinance provides for a higher minimum wage rate than the current state rate, the local rate must be paid.
CLICK HERE FOR A CHART OF CURRENT LOCAL MINIMUM WAGE RATES
What Should I Do Now?
- Determine the number of employees in the company;
- Review the pay rates for non-exempt employees and increase the pay for any employee whose rate falls below the increased minimum wage rate;
- Review the fixed salary for exempt employees and increase the salary for any exempt employee whose compensation falls below the increased threshold or reclassify the employee as a non-exempt employee.
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. ©2019.