Inflation Disrupts California Minimum Wage Rate, Leads to 2023 Pay Increases for Non-Exempt and Tax-Exempt Employees, and Affects Other California Laws | Smaller

On July 27, 2022, the director of the California Treasury Department sent a letter to Governor Gavin Newsom and other state officials, noting that the department had determined that poor economic conditions necessitated an accelerated increase in the minimum wage. Due to changes in the Consumer Price Index (CPI) from July 1, 2021 through June 30, 2022, the state minimum wage law requires the state to advance the date when it must be adjusted annually by one calendar year — from 2024 to 2023 — the minimum wage rate . Instead of applying a minimum wage of $15 per hour for employers of all sizes as expected in 2023, the minimum wage will instead increase to $15.50 per hour for all employers on January 1, 2023, with the rate adjustment to the lower of 3.5 % or the inflation rate – 7.9% during the relevant period – and 3.5% of $15 is 50 cents.

The change in the minimum wage rate will not only affect workers who are currently paid at or near the state minimum wage. It will also affect whether workers (remain) eligible for exemptions from state minimum wages and/or overtime, the dollar amount of a minimum wage an employer can pay specific workers, whether different state laws apply or exclude workers who work around a particular percentage above the state minimum wage, etc.1

Exempt Employees: To qualify for executive, administrative, and/or job exemptions from state minimum wage and overtime requirements, an employee must—in addition to other requirements—earn a monthly salary of at least twice the state minimum wage for full-time employment (40 hours per Week). To qualify for the overtime exemption for commission sales, commissions must account for more than half of the employee’s compensation and an employee must earn more than 1.5 times the minimum wage.

learners: Employers may be able to pay workers with no previous similar or related experience in a job 85% of the minimum wage for the first 160 hours of employment.

Piece rate rest and recovery time and non-productive time: Workers on piecework wages must be paid separately from their piecework wages for rest, recovery and other non-productive times. Rest and recovery time must be paid at the employee’s average hourly rate for the workweek or the applicable minimum wage (federal, state, or local), whichever is greater. For other non-productive time, these employees must be paid hourly wages not less than the applicable minimum wage (federal, state, or local).

Tools & Equipment: When tools or equipment are required or required to perform a job, an employer is generally required to provide and maintain them. However, if a worker’s wage is at least twice the minimum wage, an employer may require that the worker provide and maintain hand tools and equipment commonly required by the trade or craft.

Unionized employees: Some state statutes include an exception for unionized workers if their collective agreements provide, in addition to other requirements, premium wages for overtime and a regular hourly wage for CBA-insured workers at least 30% above the state minimum wage.

Next Steps

Prior to January 1, 2023, employers should review current pay rates for both non-exempt and exempt employees to see how these amounts will compare to next year’s California law and the impact, if any unscheduled Salary increase could put a strain on their working budget. Companies belonging to one or more of the dozens of local minimum wage ordinances in effect throughout California, $15.50 should be compared to what an applicable local law (if known) or (if adjusted annually) will require on January 1, 2023 for employers or those with certain types of employees who may be subject to a local wage rate below the minimum wage could see the state rate overtake some or all of its local counterpart in 2023. Employers should follow local developments as a location could enact or amend a minimum wage ordinance in response to the statewide increase (or enact a law independent of government activity egthere is an emerging trend of local minimum wage regulations specific to healthcare workers).

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