Beginning January 1, 2016, California employers, in all industries, will be required to provide a mandatory wage increase for their lower-tier employees, or their minimum wage earners. This is arguably one of the more costly labor laws California will implement beginning next year.
Labor Laws California - Minimum Wage and It's Impact on Employers
On September 25, 2013, the California Legislature enacted legislation (AB10) signed by the Governor of California, which raised the minimum wage for all industries. The California Department of Industrial Relations website explains the law's requirements on California employers:
"Although there are some exceptions, almost all employees in California must be paid the minimum wage as required by state law. Effective January 1, 2016, the minimum wage in California is $10.00 per hour. There are some employees who are exempt from the minimum wage law, such as outside salespersons, individuals who are the parent, spouse, or child of the employer, and apprentices regularly indentured under the State Division of Apprenticeship Standards.
There is an exception for learners, regardless of age, who may be paid not less than 85% of the minimum wage rounded to the nearest nickel during their first 160 hours of employment in occupations in which they have no previous similar or related experience.
There are also exceptions for employees who are mentally or physically disabled, or both, and for nonprofit organizations such as sheltered workshops or rehabilitation facilities that employ disabled workers. Such individuals and organizations may be issued a special license by the Division of Labor Standards Enforcement authorizing employment at a wage less than the legal minimum wage."
The fiscal impact is difficult to estimate since it will not only increase existing minimum wage salaries currently being paid, but will potentially impact the salaries of workers who previous wage increases due to merit or promotion, are already at or close to the new minimum.
Real-World Impact of Minimum Wage Increases
Businesses in the San Francisco area, for example, are already increasing prices and adjusting their hiring practices to accommodate the increased operating costs from mandatory wage increases in San Francisco, Oakland and Berkeley.
According to statistics compiled by Government.com, California currently has the following number of bottom-tier wage earners:
- At or below minimum wage: 118,000
- Total hourly employment: 8,915,000
It can be estimated, then, that the initial cost to employers as a group will be over $2,000 per employee annually assuming full-time employment. This works out to at least $200,000,000 per year in additional payroll without factoring in increased payroll tax, contributions and benefit costs.
Local Minimum Wage Labor Laws Drive the Costs Even Higher
California employers in San Francisco and Oakland have already seen far more significant mandatory wage increases go into effect this year. And other cities are on track to do the same. San Diego and Los Angeles have already taken legislative steps towards substantially higher minimum wage requirements.
According to a statement issued by Christine Owens, Executive Director of the National Employment Law Project:
“The Los Angeles City Council today joined the ranks of U.S. cities tackling poverty wages and spiraling income inequality through adoption of strong local minimum wages. By a vote of 14 to 1, the council directed L.A.’s city attorney to prepare legislation setting a $15 wage floor. The new rate will be phased in over several years, reaching $15 in 2020 for large businesses and in 2021 for smaller businesses and certain non-profits, and providing for future adjustments to be pegged to increases in the cost of living."
It's been estimated that in San Francisco and Oakland, the combined number of workers receiving newly increased wages are close to 200,000, or about 25% of the total workforce in those two cities. The increase in minimum wage for Los Angeles will impact approximately 567,000 workers.
Labor Laws California - Overtime, Minimum Wage, and You
Another topic of particular concern in regards to California labor laws is overtime rules. Both minimum wage and overtime pay is regulated and mandated at the state and federal levels. As noted in previous posts, the federal rules regarding overtime pay are in the process being changed by the U.S. Department of Labor (DOL)
These proposed changes would more than double the salary threshold for overtime eligibility to $970 a week in 2016. That means employees earning a yearly salary of $50,440 or less automatically would be eligible for overtime pay.
For right now, the threshold is still $455 a week, meaning that a salaried worker making more than $23,660 annually does not automatically qualify for overtime pay under federal standards.
The threshold rules were updated in 2004. According to the Obama administration, that threshold been eroded by inflation. President Obama also is proposing to adjust the salary threshold automatically in the years to come, either by tying it to inflation indexes or by basing it on median wage levels.
How Will This Impact California Employers?
Fortunately, the proposed rules won't be felt as strongly in California. This is because California already has strict overtime laws, which include a salary threshold that is twice the current minimum wage. This means that workers with annual salaries of $37,440 or lower qualify for overtime pay. That threshold will rise to $41,600 in January, when the state’s minimum wage is raised to $10 an hour.
In addition, California requires that employers pay time-and-a-half overtime when eligible workers reach more than eight hours in a day, even if they don't surpass 40 hours in a week. According to figures released by the Obama administration, 420,000 workers in California would benefit from the changes, but it’s unclear whether this calculation takes into account the state’s existing overtime laws.
Staying Abreast of HR and California Labor Law Requirements
It is critical to keep your company safe and your management team informed and in compliance.
Company policies reinforce and clarify the standards expected of employees and help employers manage staff more effectively by defining acceptable and unacceptable behavior in the workplace. And an HR policy manual that is comprehensive and up-to-date will provide the documentation for businesses faced with possible litigation arising from employment disputes.
If you have questions regarding this, or other HR issues and practices, let us help you in managing your HR needs, payroll processes, and staying on top of compliance demands. Get your Free Download: Payroll Outsourcing Guide to help you make an informed decision or call Accuchex Payroll Management Services at 877-422-2824.