California Minimum Wage
Almost all employers in California must abide by both federal and state minimum wage laws. In addition, local entities such as cities and counties, can set their own minimum wage rates. In fact, there are many cities in California that already have enacted their own local laws that establish higher minimum wage rates for employees working within their boundaries.
What this means for California employers is that they can find themselves subject to at least three different government minimum wage requirements. While this can be confusing, according to the California Department of Industrial Relations (DIR),
"...when there are conflicting requirements in the laws, the employer must follow the stricter standard; that is, the one that is the most beneficial to the employee."
Consequently, a typical employer in California must pay their minimum wage employees the current rate required by the state of California since it is higher than the federal rate. And, if those employers are based in a city or county that has its own wage ordinances, they are required to pay those workers the locally mandated minimum wage.
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What is a Minimum Wage?
The minimum wage is the lowest hourly pay rate that can be given to most workers. It is also known as a pay floor. In the U.S. the Fair Labor Standards Act (FLSA) determines the minimum wage for employees in private and public sectors, and in both the Federal and various State governments. Under the FLSA, non-exempt employees must be paid the minimum wage or higher. Please note that some employees are included in the minimum wage requirements, such as those who are not protected by the Fair Labor Standards Act and can be paid at a lower rate than minimum wage.
A Brief History of Minimum Wage in the U.S.
The first federal minimum wage law was signed by President Franklin D. Roosevelt in 1938 and it established the minimum hourly wage at 25 cents, and the maximum work week at 44 hours. In 1912, Massachusetts passed the first minimum wage legislation in the U.S., which established a state commission for recommending non-compulsory minimum wages for women and children. By 1920, at least thirteen U.S. states and the District of Columbia passed minimum wage laws. California was one of these states with a prevailing minimum wage of 16 cents an hour in 1920. That rate increased three times over the next four years, capping out at 33 cents in 1920. However, there were no additional increases by the state for another 23 years when, the rate went up to 45 cents an hour on February 8, 1943, a 36.36 percent increase.
How Much is Minimum Wage
There are now 30 states that have laws mandating higher pay than the $7.25 federal minimum wage.
Here are the top five states with the highest minimum wages in 2018:
- Washington, D.C., the minimum wage is currently $13.25
- Washington state, the minimum is $11.50
- Massachusetts is currently $11 per hour
- California is currently $11.00
- And, Vermont is at $10.50
Part of this trend is a response to the lagging federal minimum which is considered by many to be insufficient for the current economic realities of most states.
The federal minimum wage has been upped only three times in the last 20 years and the last increase was in 2009:
- Sept. 1, 1997 - $5.15
- July 24, 2007 - $5.85
- July 24, 2008 - $6.55
- July 24, 2009 - $7.25
California Minimum Wage
To help give employers a quick overview of minimum wage in California, we developed an infographic that illustrates the specific minimum wage increases in California along with statistics on minimum wage workers in our state.
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As noted above, the California statewide minimum wage is currently $11.00 an hour for workers at companies with 26 or more employees, which makes California one of the highest-paying states. In fact, when it comes to minimum wage, California is now one of the leaders in the “living wage” movement.
For those employers with 25 workers or less, the current minimum wage is set at $10.50 for 2018. The most recent increase took place on January 1, 2018 when the hourly wage amounts increase to $11.00 and $10.50 consecutively.
At the current rate of $11 an hour, a full-time minimum wage worker at a large company in California can earn $22,880 in gross annual wages. According to the timeline established in the California labor law, the state’s minimum wage will increase one dollar each year until it reaches the level of $15 an hour in 2022.
This would equate to an additional $8,320 per year in wages per minimum wage employee. During this time, the governor can temporarily suspend the increases under certain economic or budgetary conditions. After 2022, the minimum wage will be indexed to inflation.
California Cities and Minimum Wage Laws
The question of how much is minimum wage in California depends on the location of the employer’s business.
In addition to these statewide changes, at least 12 cities throughout California have minimum wage increases slated for January 1, 2018. Another 16 cities and counties have increases scheduled for July 1, 2018, as well.
A number of these subsequent increases continue for years until a cap, usually $15.00 per hour, has been reached. Also, there are a few cities that have subsequent increases dictated by adjustments for inflation as opposed to a set amount.
Minimum Wage in Important California Cities
Many cities and counties in California have instituted their own minimum wage and salary requirements that exceed the limits imposed by the state. For example, minimum wage in San Francisco is currently at a level of $14.00 an hour, but that is slated to increase to $15.00 an hour beginning July 1, 2018.
Businesses based there must pay workers at least the minimum wage in San Francisco, California state requirements being trumped by the local ordinances.
Los Angeles and Los Angeles County have adopted the state's approach and has rates for smaller business of 25 workers or less, and larger firms with 26 or more employees. Both the city and the county currently require $10.50 and $12.00 per hour consecutively, based on number of workers.
This amount will increase on July 1, 2018 to $12.00 and $13.25 an hour consecutively, as well.
The city of San Jose increased its minimum wage to $13.50 at the beginning of 2018, up from $12.00 in 2017.
In Sacramento, the capital city of California, the current minimum wage for all businesses and employees is $11.00 as of January 1, 2018.
Minimum Wage Increases
In California, the state mandated minimum wage was $8.00 an hour in 2008. This amount did not increase for another five years. Finally, in 2014, the state enacted a one-dollar increase that remained through 2015, as well.
It was in 2016 that the state of California passed a historic piece of legislation that put the state on the path to a $15.00 an hour minimum wage. On April 4, 2016, Governor Brown signed Senate Bill 3 (SB 3), which increases California’s minimum wage each year so that it will reach $15 per hour in 2022 (unless the increases are temporarily delayed at any point due to certain economic conditions).
In the meantime, several cities and counties have also enacted minimum wage laws. In fact, at least 28 counties, cities, towns and municipalities in California have established their own minimum wage laws and ordinances since 2016. And indications are that many other cities are considering following suit.
These also include the Jackson Rancheria Band of Miwok Indians Casino’s and Resorts, which established their own minimum wage requirements, as well.
Impact of Increasing Minimum Wage
The increase of minimum wage has sparked on ongoing debate between supporters and opponents of a minimum wage increase. Check out our page on the minimum wage debate. While the consensus among minimum wage advocates is that mandating a fair pay floor that reflects the rising costs of living, others contend that there are often unintended consequences.
Lower income workers, for whom the mandatory wage increase was intended to benefit, often suffer as a consequence from unintended effects.
According to one study, when California implemented a 10-percent minimum-wage increase, there was a corresponding 1.2 percent decline in new low-wage workers. This seemed to indicate that although most workers kept their jobs and benefited from the increased pay, employers were creating or filling fewer minimum-wage.
And for small business owners, the financial impact has been very immediate and burdensome. This has been especially true for restaurant owners and their employees who are typically minimum wage earners. And, unfortunately, this may have a disproportionate impact on certain ethnic groups.
California has the largest restaurant industry in the United States and accounts for almost 4 percent of the United States’ total gross domestic product. California also has one of the highest proportions of non-white restaurant workers in the country with Latinos comprising over 50 percent of California’s restaurant workforce as recently as 2015.
In early 2017, after the first minimum wage increase from the new law, Wendy’s CEO Bob Wright said the firm expected wages to rise at least 4%. He said that Wendy’s had three options to offset the rising costs.
According to Business Insider,
"First, they could cut margins, but with an 8% margin, that’s unlikely. The second option is to raise prices. Given how price-sensitive consumers are these days, that too is a non-starter. Finally, the firm could reduce the amount of labor they use… and that’s exactly what they did. Wendy’s eliminated 31 hours of labor per location, per week."
Another result of mandatory wage increases is the residual and subsequent increase in prices for goods and services. Many businesses feel they are not able to absorb the added overhead of across-the-board salary expense increase and pass some of that expense on to their customers.
And other businesses simply choose to close their doors having determined that their business model is no longer viable, as has already been seen because of the Seattle and San Francisco minimum wage requirements, for example.
It is estimated that in San Francisco alone there were over 142,000 minimum wage workers who received a pay raise last year, for example. In Oakland, this represented an increase of wage costs for the employers of another estimated 48,000 workers.
While these totals are based on estimates, they represent an increased cost for San Francisco and Oakland city employers of over $2,000,000 in hourly wages to paid just in a year’s time. And this does not take into account increased payroll and employment taxes.
Another dilemma for employers is that many cannot, in good conscience, give their minimum wage workers the mandated increase without giving a similar increase to those workers who were already being paid slightly more than minimum. Consequently, they end up having to give most or all their workers pay increases, which can be crippling for smaller businesses.
Minimum Wage Laws and Wage Claims
As is the case with many new regulations, minimum wage requirements not only increase the costs, but also and the risks for employers. These laws usually require new workplace postings or changes to existing workplace policies. In light of these requirements it is recommended that all employers consult with experienced employment counsel to ensure compliance.
Sustained compliance is critical. Employee claims and lawsuits are rising, according to some observers, and the costs to businesses accused of violating labor laws can be devastating.
In a recent case, a lawsuit alleges that a car wash in Los Angeles, which employs about 20 people, paid them as little as $6.50 per hour, well below the minimum wage. The suit also alleges workers were not paid overtime and were not paid if they worked less than five hours on days the car wash shut down early for lack of customers.
While this may be an intentional case of defrauding employees on the part of the company, it serves to illustrate that labor laws can be complex and overlapping.
For example, the Los Angeles Times recently reported that the city of Los Angeles sued three port trucking companies. The suit alleged that the firms exploited their drivers by misclassifying them as independent contractors to avoid paying minimum wage and employee benefits even though the companies “exert near complete control” over the drivers’ schedule.
There are numbers of similar cases involving wage disputes and related employee complaints. In fact, according to the recent study, businesses with at least 10 employees have a 12.5 percent chance, on average, of having an employment liability charge filed against them. But in some states, such as California, these same businesses statistically face a much higher level of possible litigation.
Exceptions to Minimum Wage
California minimum wage law applies to most all employers, both private and public. However, it is important to note that there are specific exceptions to both the federal and state minimum wage requirements.
Here is an overview of these exceptions:
Trainees or Learners
California minimum wage laws allow an employer to pay trainees (often referred to as “learners”) a sub-minimum wage rate that is no less than 85% of the standard minimum wage for the first 160 hours of employment. To qualify, the trainees must have no previous or related experience in the occupation for which they are hired.
According to the California Minimum Wage Order MW-2017:
“There is an exception for learners, regardless of age, who may be paid not less than 85 percent 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.”
Disabled Workers
Also, there are exceptions for employees who are certified to be
“mentally or physically disabled, or both, and for nonprofit organizations such as sheltered workshops or rehabilitation facilities that employ disabled workers.”
California minimum wage laws only permits an employer to pay these workers a wage rate lower than the standard minimum wage if the employer has obtained licenses to do so from the California Division of Labor Standards Enforcement.
Sections 1191 and 1191.5 of the California Labor Code stipulate that these workers and organizations may be issued a special license by the Division of Labor Standards Enforcement.
Apprentices
California minimum wage law authorizes the Industrial Welfare Commission (IWC) to establish a sub-minimum wage rate that may be paid apprentices who are regularly indentured according to the State Division of Apprenticeship Standards.
Other Worker Exceptions
There are additional categories of employees that are exempt from the minimum wage law in California. These include outside salespersons and individuals who are the parent, spouse, or child of the employer.
Tipped Employees
Under the federal rules, tipped employees can be paid a much lower minimum wage. However, in California, there is no longer a reduced minimum wage rate for tipped employees.
In fact, California is one of only seven states that requires tipped employees to be paid the state minimum wage. In addition, employers must pay tipped employees the standard minimum wage for all hours worked. When it comes to tipped employees, employers must also be aware of the reporting time rule.
Student Workers and Student Learners
The state of California also does not allow employers to pay sub-minimum wages to Non-Trainee Learners, Student Learners or Student Workers. Instead, California employers must pay these employees the standard minimum wage rate, unless otherwise exempt, e.g. the student worker is also disabled or a child of the employer.
Get Expert Help with Minimum Wage Compliance
Payroll compliance is a labor-intensive requirement of all employers, but it can be achieved and there are scores of resources available for the employer who chooses to manage their own payroll processes. The state of California provides information at the Department of Industrial Relations website:
http://www.dir.ca.gov/dlse/faq_minimumwage.htm
Another option to consider is utilizing a managed payroll service. By outsourcing these functions, you can also outsource all of the requirements that are currently on your HR staff to maintain compliance.
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.
