As we reported last
month, state lawmakers and Gov. Schwarzenegger brokered a deal in August to boost
minimum wage. The agreement was subsequently included in a bill, A.B. 1835,
that Gov. Schwarzenegger has now signed into law. We’ll take a look at the
details of the increase and how it will impact
Join us this fall in San Francisco for the California Employment Law Update conference, a 3-day event that will teach you everything you need to know about new laws and regulations, and your compliance obligations, for the year ahead—it’s one-stop shopping at its best.
Two-Stage Increase
The minimum wage
increase will take effect in two stages: minimum wage earners will get a 75
cents per hour boost on Jan. 1, 2007, to $7.50, and then another 50 cents per
hour raise on Jan. 1, 2008. The measure will give
when the $8.00 rate takes effect and is expected to affect more than a million
Californians who earn minimum wages.
Note that this bill does
not automatically boost the wage rate annually based on changes in the Consumer
Price Index. In brokering a deal to raise the minimum wage, the governor made
it clear that he wouldn’t sign a measure that would put increases on
“autopilot.”
Workplace Implications
Here’s a look at how the
increase will impact
employers and employees:
1. Nonexempt employees. The most visible impact
of the minimum wage rate change will be for nonexempt minimum wage earners, who
will see a quick 75 cents an hour increase in their wages. The $8.00 rate that
takes effect in 2008 will add up to a $2,600 increase in annual earnings for
such employees who work full time.
2. Exempt employees. The increase may also affect
some exempt workers, as the minimum salary that employees must earn to qualify
for the executive, administrative, and professional exemption from overtime under
state law is pegged to the state minimum wage. These employees must receive a
salary that is at least two times the
minimum wage, based on a full-time workweek. Effective Jan. 1, 2007, this means
exempt employees must earn at least $2,600 monthly (or $31,200 annually). As of
Jan. 1, 2008, the minimum monthly salary will jump to 2,773.33 (or $33,280 a
year). Currently, the minimum salary for exempt employees is $2,340 a month
($28,080 annually).
Employees who qualify
for
commissioned sales exemption may also be affected by the rate increase. These
employees must earn at least 11/2
times more
than the state minimum wage for every hour worked in a week. Thus, effective
Jan. 1, 2007, they must earn at least $11.25 an hour, and effective Jan. 1,
2008, they must earn at least $12.00 an hour.
3. Union employees. The rate hike may also
impact employees covered by collective bargaining agreements. That’s because
state law contains an overtime exemption for employees covered by a collective bargaining
agreement, where the agreement provides for the wages, hours of work, and
working conditions of the employees, as well as premium wage rates for all
overtime hours worked and a regular hourly rate of pay for those employees of
at least 30 percent more than the state minimum wage. To qualify for this exemption,
the hourly rate as of Jan. 1, 2007, must be $9.75, rising to $10.40 on Jan. 1,
2008.
How to Get Ready
In preparation for the
first rate increase on January 1,
employers (as well as employers outside the state who employ workers here)
should thoroughly review wage rates for both nonexempt and exempt employees to
be certain of compliance with the new minimum wage. If you need to increase
wages or salaries, allow enough lead time for payroll to make the adjustments
by the January 1 deadline. Follow up with a review in the latter part of 2007
to ensure compliance with the second increase that will take effect in 2008.
Also, employers will
need to replace the California Minimum Wage notice and Industrial Welfare Commission
wage orders that must be posted in the workplace. We’ll let you know when
they’re available from the California Department of Industrial Relations.