What is California’s Minimum Wage?

As of January 1, 2020, California’s minimum wage is $12.00 per hour for companies with 25 employees or less and $13.00 per hour for companies with 26 employees or more.

In 2016, the State of California enacted changes that would increase the state’s minimum wage annually by gradual amounts until it reached a minimum wage of $15.00 per hour. Increases take place on January 1st of every year. Below is a schedule of California’s Minimum Wage over the next few years.

Who does this impact?

All nonexempt employees working for an employer operating in California. Certain counties and municipalities may also have a minimum wage; in locations where there may be multiple minimum wages, as a general rule a thumb, employers should comply with the highest (most restrictive) rate. For example, if your company that employs less than 25 individuals but is based in Los Angeles, than your employee minimum wage is $13.25 per hour versus the state minimum of $12.00 per hour.

There are a number of cities that have enacted their own minimum wage. It is imperative for employers to consult their tax attorney or tax professional to ensure their compensation policies are inline with the legislation of the geography in which they operate in.

Are there any exceptions?

There are exceptions to the minimum wage for certain types of employees. Two of the more common exceptions are learner employees and exempt employees.

Learners – a learner employee is an individual who has no previous similar or related experience in their occupation. Employers can pay learner employees no less than 85% of the minimum wage for the first 160 hours of the learner’s employment. An employee can be considered a learner employee regardless of age.

Exempt Employee (“white-collar”) – an employee is considered an exempt employee if they meet the following requirements:

  1. 50% of their worktime is devoted to executive, administrative, and or professional duties
  2. Exercise discretion and independent judgement at work and
  3. Earn a salary that is a minimum of twice the state minimum wage for fulltime work.

It is important to note that just because an employee’s salary is twice the state minimum wage, this does not make them an exempt employee. All three requirements must be met to be considered an exempt employee. Unlike non-exempt employees, exempt employees are not entitled to overtime pay.

Other exceptions include mentally or physically handicapped employees working for not-for-profit or rehabilitation facilities, outside sales people, and independent contractors. Note that employers and employees cannot enter into an agreement that waives an employee the right to minimum wage. Employees who receive tips as part of their compensation are also not exempt from California minimum wage. Tips are considered separate to wages and therefore employers must still pay employees the minimum wage.

Minimum Wage is key California cities

Below are certain municipalities who have enacted minimum wages greater than the state minimum wage. These are all effective as for January 1, 2020.

Key Take-Aways Employers

  • California minimum wage is set to increase on January 1 of every year through 2023.
  • When counties and municipalities have a minimum wage enacted that is different from the state minimum wage, employers must pay employees the higher of the amount.
  • Employees and employers cannot engage an agreement that waives an employee of their minimum wage.

It is recommended that employers consult their tax attorney and or tax professional regularly to ensure their HR and compensation policies are inline with best practices. Compensation is a key part of the employee-employer relationship; proactive and thoughtful reviews of compensation policies will help build trust with employees while minimizing the risk of legal action.

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