Here We Go Again – California’s Historic Minimum Wage Hike!
Posted April 4, 2016

On April 4, 2016, Governor Edmund G. Brown, Jr. signed Senate Bill 3 into law. This bill creates ground-breaking legislation to increase California’s minimum wage to $15.00 per hour by 2022. These minimum wage increases will occur incrementally.

For employers with 26 or more employees, the minimum wage will increase as follows:

YearAmount
January 1, 2017 to December 31, 2017$10.50
January 1, 2018 to December 31, 2018 $11.00
January 1, 2019 to December 31, 2019 $12.00
January 1, 2020 to December 31, 2020 $13.00
January 1, 2021 to December 31, 2021 $14.00
January 1, 2022 to December 31, 2022 $15.00

For employers with 25 or fewer employees, the minimum wage will increase as follows:

YearAmount
January 1, 2018 to December 31, 2018$10.50
January 1, 2019 to December 31, 2019$11.00
January 1, 2020 to December 31, 2020$12.00
January 1, 2021 to December 31, 2021$13.00
January 1, 2022 to December 31, 2022$14.00
January 1, 2023 to December 31, 2023$15.00

An annual incremental increase can be temporarily suspended by Governor Brown or his successors as the result of economic downturns, based on certain specified criteria (i.e., decreases in total non-farm employment, downturns in retail sales, or if the Director of Finance finds that an increase would push the State budget into a deficit in the current fiscal year or in either of the two following fiscal years).

Once the $15.00 minimum wage marker is ultimately attained, the bill also creates annual inflation-related increases tied to the U.S. Consumer Price Index (which are not to exceed 3.5% in a year, with the resulting amount rounded to the nearest $0.10). This “inflation” increase will be calculated each year on August 1st, and any change will take effect on January 1st of the following year.

In a somewhat related move, this bill also eliminates the sick leave law exemption for the In-Home Supportive Service (“IHSS”) workers. Now, after SB 3, IHSS employers must provide the following:

  • By 2018, IHSS workers must receive an accrual of eight (8) hours of sick leave or one (1) paid sick day per year;
  • By 2019, IHSS workers must receive an accrual of 16 hours of sick leave or two (2) paid sick days per year (or whenever the minimum wage hits $13.00 per hour for employers with 26 or more employees – whichever is later); and,
  • By 2020, IHSS workers must receive an accrual of 24 hours of sick leave or three (3) paid sick days per year (or whenever the minimum wage hits $15.00 per hour for employers with 26 or more employees – whichever is later).

The ripple effect of these increases and changes will significantly alter the employee pay scales for both non-exempt and exempt employees.

For non-exempt employees, as each of the new increases go into effect, an employer’s lowest-level worker could now possibly earn the same amount per hour as his most proximate supervisor – causing a chain-reaction of wage increases for all employees from top to bottom; which could significantly and negatively impact an employer’s profitability.

These minimum wage increases will also impact California’s exempt workers. California law requires exempt employees to meet both a “salary basis test” and a “duties test.” The “salary basis test” requirement is directly tied to the minimum wage – an exempt employee must earn at least twice the minimum wage. Here is how that breaks down in terms of salary dollars:

  • At $10.00 per hour, the salary basis is $41,600 annually;
  • At $11.00 per hour, the salary basis will be $45,760 annually;
  • At $12.00 per hour, the salary basis will be $49,920 annually;
  • At $13.00 per hour, the salary basis will be $54,080 annually;
  • At $14.00 per hour, the salary basis will be $58,240 annually; and,
  • At $15.00 per hour, the salary basis will be $62,400 annually.

Given these realities, it is not hard to imagine employers attempting to lessen the impact of each new increase in labor costs by reducing employees, employee benefits, or passing along the increased labor costs to the consumer through increased pricing.

The full text of SB 3 can be found on the California Legislative Information website at: https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201520160SB3.

If you have questions about SB 3 or its ripple effect impacts, or any other employment law questions, contact the employment attorneys at LightGabler for assistance.