When Gov. Schwarzenegger signed legislation last month that will raise California’s minimum wage to $8.00 per hour from the current $6.75 per hour, he put the state on course to have the highest minimum wage in the nation when the full hike takes effect.
The rate 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. Note that this law does not automatically boost the wage rate annually based on inflation. 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.”
The Impact
The increase will impact California employers and employees in a number of ways:
- Nonexempt employees. The most visible effect of the minimum wage rate change will be for nonexempt minimum wage earners, who will see a quick 75 cents per hour increase in their wages. And, when the $8 rate takes effect in 2008, this will add up to a $2,600 increase in annual earnings for employees who work full time.
- Exempt employees. The increase may also impact some exempt workers, as the minimum salary that employees must earn to qualify for the executive, administrative, and professional exemptions 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 California 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 California’s 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 per hour, and effective Jan. 1, 2008, they must earn at least $12.00 per hour.
- 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 if the agreement provides for employees’ wages, hours of work, and working conditions, 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.
What to Do
To prepare for the first rate increase on Jan. 1, California employers (and employers outside the state who employ workers here) should review wage rates for both nonexempt and exempt employees to be certain of compliance with the new minimum wage (although keep in mind that certain cities and counties have even higher “living wage” rates). If you need to increase wages or salaries, allow enough lead time for payroll to make the adjustments by the Jan. 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.
Paying Overtime: 10 Key Exemption Concepts
Only one thing really matters in the determination as to whether or not an employee is exempt: The duties the employee performs. Learn how to avoid costly, preventable mistakes with our free White Paper, Paying Overtime: 10 Key Exemption Concepts.
Also, employers will need to replace the California Minimum Wage notice and Industrial Welfare Commission Wage Orders that must be posted in the workplace. As soon as the revised posters are released, we’ll make them available on our website for easy download.
Additional Resource: