Effective January 1, 2027, California’s minimum wage for non-exempt (typically hourly) employees will increase from $16.90 to $17.40 per hour. The ripple effect of this increase will alter employee pay scales for both non-exempt and exempt employees. Employers are encouraged to start planning for this increase now.
As with every minimum wage increase, keep in mind that for non-exempt employees, as this increase goes into effect, an employer’s lower-level workers could now possibly earn the same or a similar amount per hour as the employee’s most proximate foreman or lead – causing a chain-reaction of wage increases for employees from the bottom tier on up.
In California, most exempt workers must meet a “salary basis test.” Under this test, an exempt employee must earn at least twice the state minimum wage. As of January 1, 2027, the new exempt employee minimum salary amount will increase from $70,304 to $72,384 annually. To calculate the salary basis in California, multiply the minimum wage by two ($17.40 per hour for 2027). Next, multiply that number by 2,080 hours (40 hours per week multiplied by 52 weeks per year). For 2027, that is $17.40 x 2 = $34.80. $34.80 x 2,080 = $72,384. Note that local city or county rules that provide for a minimum wage higher than the state minimum do not apply to this calculation.
Keep in mind that more than 30 California cities and counties have their own minimum wage. Employers must comply with the higher of the California state or local minimum wage that applies to their non-exempt, hourly employees. Note also that several local areas increase their minimum wages on July 1 of each year (not January 1). Employers can view LightGabler’s recent post regarding local minimum wages that increased this July here. Employers are encouraged to stay abreast of the local rules that apply to their business and can find the current minimum wage rates for any of these cities, along with those of other states throughout the United States, at the UC Berkeley Labor Center. See: https://laborcenter.berkeley.edu/inventory-of-us-city-and-county-minimum-wage-ordinances/.
Be sure to review all possible local, state, and federal minimum wage laws that might apply to your employees, and remember that sick time rules may differ depending on the local jurisdiction and the location of your workers.
For questions about employment law issues, contact the attorneys at LightGabler LLP.
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