On April 4, 2016, Governor Brown signed Senate Bill 3, which will increase California’s minimum wage annually, reaching $15 per hour for employers with at least 26 employees by January 1, 2022.  This bill enacts the highest statewide minimum wage in the nation, on par with New York, which enacted a bill mandating a $15 minimum wage last week.

Governor Brown opposed the bill just a few months ago, stating that it “would put a lot of poor people out of work.”  However, during a press conference touting the signing of the bill on April 4, Governor Brown stated that, while the minimum wage “may not make sense” economically, it makes sense “morally and socially and politically.”

For employers with at least 26 employees, California’s minimum wage will increase on the following schedule:

• January 1, 2017 through December 31, 2017: $10.50 per hour.
• January 1, 2018 through December 31, 2018: $11 per hour.
• January 1, 2019 through December 31, 2019: $12 per hour.
• January 1, 2020 through December 31, 2020: $13 per hour.
• January 1, 2021 through December 31, 2021: $14 per hour.
• Beginning January 1, 2022: $15 per hour.

Employers with 25 or fewer employees will follow a minimum wage schedule that lags behind the above schedule by one year.  Accordingly, for these employers, the minimum wage will be $10.50 per hour starting on January 1, 2018, $11 per hour on January 1, 2019, and continuing on this schedule until reaching $15 per hour on January 1, 2023.

Beginning on August 1, 2022, and recurring on August 1 of each year thereafter, California’s Director of Finance will increase the minimum wage for the following year based on statistics from the United States Bureau of Labor Statistics.

The Governor has the ability to suspend the above minimum wage increases if certain economic factors indicate that the state is in recession.

Notably, California’s salary basis test for exempt employees is directly tied to the state’s minimum wage.  Exempt employees must earn at least twice the state’s minimum wage for full-time employment, meaning that under the current $10 per hour minimum wage, exempt employees must earn an annual salary of $41,600 ($10 per hour x 2 x 40 hours per week x 52 weeks per year).  Under a $15 per hour minimum wage, the minimum annual salary jumps to $62,400 ($15 per hour x 2 x 40 hours per week x 52 weeks per year).

Employers are encouraged to start assessing their workforce and compensation policies to prepare to adjust compensation for, at a minimum, nonexempt employees who earn less than $15 per hour and exempt employees who earn less than $62,400 per year.

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