On September 25, 2013, Governor Brown signed AB 10 into law, raising California’s minimum wage from $8 per hour today to $10 per hour by 2016.    

The bill will raise the minimum wage in two separate one-dollar increments: from $8 to $9 per hour effective July 1, 2014, and then from $9 to $10 per hour effective January 1, 2016.

California is the first state to implement a $10 per hour minimum wage, which is considerably higher than the current federal minimum wage of $7.25 per hour.  While most employers in California are subject to both the federal and state minimum wage laws, the employer must follow the stricter standard; that is, the one most beneficial to the employee.  Accordingly, all employers in California who are subject to both laws must pay the higher California minimum wage rate unless their employees are exempt. 
The higher minimum wage will impact more than just the increase to hourly earners in California.  For example, the following areas will be affected by the minimum wage hike:

  • Salary Basis Test for “White Collar” Exemptions: Exempt California employees are required to receive a monthly salary of at least twice the California minimum wage for full-time employment.  Under AB 10, the minimum salary amounts will go up from $33,280 per year today to $37,440 per year by July, 2014, and to $41,600 by January, 2016.
  • Commissioned Salesperson Exemption: To qualify for the commissioned salesperson exemption, employees must earn more than 1.5 times the California minimum wage.  Thus, the minimum earning rate will go up from $12 per hour today to $13.50 per hour on July 1, 2014, and $15.00 per hour by January, 2016.
  • Overtime, Vacation, Sick Leave, Paid Time Off, Meal and Rest Period Premiums: These must be adjusted in light of the increased minimum wage.
  • Employees Who Furnish Tools or Equipment: An employee who is paid at least twice the minimum wage may be required to provide and maintain hand tools and equipment customarily required by his or her trade.  This rate will go up from $16 per hour today to $18 per hour on July 1, 2014, and $20 per hour by January, 2016.
  • Split-Shift Pay: Employers who operate 2 or more shifts in a workday with an unpaid break of more than an hour between them must comply with “split-shift” pay regulations — an extra hour of pay at California’s minimum wage, unless the employee earns more than an hour of extra pay at minimum wage on that workday. 
  • Voluntary Meal or Lodging Agreement: Meals or lodging may not be credited against the minimum wage without a voluntary written agreement between the employer and the employee.  Any such voluntary written agreement will need to be adjusted to reflect the minimum wage increase.
  • Posting Requirement: Employers will be required to post the new wage in an area frequented by employees where it may be easily read during the work day.

Note that certain California cities may impose an even higher minimum wage and/or adjust their minimum wage more frequently.  For example, San Francisco’s current minimum wage rate is $10.55 per hour.  San Jose’s current minimum wage rate is $10.00 per hour, and will increase to $10.15 per hour on January 1, 2013.

Also note that while the California minimum wage provisions apply to public employers (see, e.g., Wage Order Nos. 1-13, 16; Sheppard v. N. Orange County Reg’l Occupational Program), the impact may vary from that outlined above.

Employers should review their compensation policies for all employees—hourly, salaried and exempt—to ensure timely compliance with the new changes in California’s minimum wage.  

See our earlier eBuzz for more information on AB 10.