Minimum Wage Increases Impact Employees At All Levels

Governor Brown has signed into law AB 10, which increases California’s minimum wage in two stages, “. . . [1] on and after July 1, 2014, the minimum wage for all industries shall be not less than nine dollars ($9) per hour, and [2] on and after January 1, 2016, the minimum wage for all industries shall be not less than ten dollars ($10) per hour.” The ripple effect of these minimum wage increases will significantly alter the employee pay scales for both non-exempt and exempt employees.

For non-exempt employees, after the new increases go into effect, an employer’s lowest-level worker may now earn the same amount per hour as his supervisor. The chain-reaction of wage increases for all employees from top to bottom could significantly drain an employer’s profitability. It is not hard to imagine employers lessening the impact of the new increased labor costs by reducing employee hours or benefits, or passing along the increased labor cost to the consumer through increased pricing.

The minimum wage also impacts California’s exempt workers. California law requires exempt employees to meet both a “salary test” and a “duties test.” The “salary test” requirement is directly tied to the minimum wage, as exempt employees must earn at least twice the minimum wage for a full-time employee. For example, based on the current minimum wage rate of $8.00 per hour, an exempt employee must earn at least $640 per week, which translates into an annual salary of $33,280. At $9.00 per hour, that same employee must now make $720 per week or $37,440 annually. At $10.00 per hour, the salary basis will be $800 per week and $41,600 annually.

For questions regarding the minimum wage increases or any other employment law issues, contact any of the employment attorneys at LightGabler.