Everything You Need to Know About the Minimum Wage Increase

It’s coming! The latest California minimum wage increase is upon us and as an HR company, we’re certainly talking about it. So, we thought we’d let you in on the conversation and make sure you have everything you need to know as it goes into effect. Here’s our chat with our Chief Human Resources Officer, Shelley. (She’s kind of the guru on these things.)

Who will this affect?

Almost all employers in the state of California are subject to the law that will increase the minimum wage on January 1, 2019. For those with fewer than 26 employees, the minimum wage will be raised from $10.50/hour to $11/hour. For those with 26 or more employees, the minimum wage will be raised from $11/hour to $12/hour.

Employers who have employees working in cities where there are local minimum wage laws, including San Diego, Los Angeles City, Los Angeles County (unincorporated areas), Malibu, and Pasadena, to name a few, must comply with those local laws if they call for a higher minimum wage. (Whichever is the most favorable to employees — state or local — is the one these employers must pay.) Note that the distinction is whether or not the employer has employees who work at least two hours in a week in a city where there is a local minimum wage law; where the employer is based is not necessarily relevant.

How does this affect exempt status employees?

Please keep in mind that every time the state of California raises its minimum wage, it also raises the rates used for determining exempt status under the FLSA. To be clear, for a position to be classified as exempt (not eligible for overtime) there must be two tests applied: a duties test and a salary test. For a position to be considered exempt in California, it must pass the duties test and its salary must be at least two times the state minimum wage. Hence, every time the minimum wage is raised, the salary basis for exempt status goes up as well. That means employers must ensure the employees they have classified as exempt are still being paid twice the minimum wage and, if they are not, their pay must be raised as well.

This provision under the law is contingent on the state’s minimum wage only, not any local minimum wage. So, let’s say you have a non-exempt employee who is paid minimum wage under the San Diego law, and you have his/her counterpart — who is exempt and also working in the city of San Diego — who is paid two times the state’s minimum wage. If the state’s minimum wage goes up but San Diego’s does not, the non-exempt employee will not get an increase (unless the state wage goes above San Diego’s — unlikely), but the exempt employee will. If the San Diego minimum wage goes up but the state minimum wage does not, the non-exempt employee will be raised to meet it, but the exempt employee is dictated by the state, so he/she does not get a raise.

What kind of businesses or employees will be exempt from this?

Employers who are required to pay living wages (typically federal and state contractors) or who are parties to collective bargaining agreements are not required to pay minimum wage.       

When do employees need to start receiving this funding? Is there any kind of retroaction that needs to happen for any type of employee?

Employees need to be increased as necessary for all hours worked beginning on January 1, 2019. There is no retroactive component to this.

How do employees need to be informed of this rate increase?

There is no prescription for this under the law, but best practice would dictate that you inform employees in advance (30 days.) An individual conversation with or email to each employee is best.

How can businesses easily bump up/raise an hourly rate for large numbers of employees? Is there an automation or software option?

I don’t know our software well enough to say. I presume there is, but the advice is to check with your payroll provider. I would advise that an audit of exempt employees be conducted before “bumping up” any of them.

Similarly, how can businesses prepare for the steady stream of increases over the next few years?

I would say have knowledge about what the planned increases are so you’re not taken by surprise. That way, you can plan for increased costs and what you need to do to accommodate them.

Have more questions about these changes? Contact us anytime. We would be happy to point you in the right direction!

Legal Disclaimer: This post is intended for informational purposes only, and does not constitute legal information or advice. This information and all Coastal Payroll materials are provided in consultation with federal and state statutes and do not encompass other regulations that may exist, such as local ordinances. Transmission of documents or information through the Coastal Payroll does not create an attorney-client relationship. If you are seeking legal advice, you are encouraged to consult an attorney.