On April 4, 2016, Governor Brown signed Senate Bill (“SB”) 3 into law. SB 3 incrementally raises California’s minimum wage each year between 2017 and 2022 and also changes what constitutes an “exempt” employee from overtime pay requirements. (Had a bill not been passed, California citizens would have had an opportunity to decide on raising the minimum wage. The California $15 per hour Minimum Wage Initiative, was certified for the November ballot but then was withdrawn after SB 3 was passed and signed into law.) Absent certain economic conditions, the minimum wage will increase from $10 to $15 an hour by 2022, as follows:
- On January 1, 2017, the minimum wage will increase to $10.50 per hour.
- On January 1, 2018, the minimum wage will increase to $11 per hour.
- On January 1, 2019, the minimum wage will increase to $12 per hour.
- On January 1, 2020, the minimum wage will increase to $13 per hour.
- On January 1, 2021, the minimum wage will increase to $14 per hour.
- On January 1, 2022, the minimum wage will increase to $15 per hour.
There is a delay for small businesses to implement the minimum wage schedule.. Specifically, the above schedule is delayed at each step by one year for employers with 25 or fewer employees. Public employers will also be less impacted by these changes than private sector employers will be. However, K-12 school districts must comply with state minimum wage law. This is because a Court of Appeal decision from 2010, (Sheppard v. North Orange County Regional Occupational Program), considered whether the Industrial Welfare Commission (IWC) could impose a minimum wage on the public sector and held that it could for a K-12 school district.
Some California municipalities have already increased the minimum wage in their cities this year:
- El Cerrito: $11.60/hour
- Emeryville: $13/hour for businesses with 55 or fewer employees; $14.82/hour for businesses with 56 or more employees
- Los Angeles (city): $10.50/hour for employers with 26 or more employees; $15.37/hour for hotel workers
- Los Angeles County: $10.50/hour for employers with 26 or more employees
- Pasadena: $10.50/hour for employers with 26 or more employees
- San Diego: $10.50/hour
- San Francisco: $13/hour
- Santa Monica: $10.50/hour for employers with 26 or more employees;$13.25/hour for hotel workers
- Sunnyvale: $11/hour
In addition to the new minimum wage laws, employees need to be aware of a new Department of Labor (DOL) rule regarding overtime compensation (and how that law differs from California’s overtime and exempt status laws). The biggest change relates to the “white collar” exemptions for overtime pay. The DOL’s new rule increased the “white collar” exemption to at least $913 per week, or $47,476 annually. California has its own “white collar” exemption, which is calculated at 40 hours per week, times twice the state’s minimum wage (currently $800 per week and rising to $1,200 per week by 2022). This means that California employees will have to pay careful attention to how the thresholds change over time to ensure that they are being properly classified by their employers. (In the public sector, overtime exemptions will not be affected by the state minimum wage increases.)
California employers must also be aware that the “primary duty” test still applies to the determination of an employee’s exemption status. California’s standard is different than the federal standard. The state standard requires employees to be “primarily engaged” in exempt duties to qualify as exempt. This means that more than 50% of an employee’s time must be spent engaging in the activities that earn the exemption. So even if a California employer pays someone enough under the federal and state standard, it may still not qualify employees as exempt under California law.
The new DOL rule also raises the salary threshold for highly compensated workers (subject to a different duties test) from $100,000 to $134,004. This is equal to the earnings of the 90th percentile of full-time, salaried workers nationally. However, California does not have the same or a similar exemption, and therefore employees who may be exempt under the new federal law may not be exempt under California law.
When it becomes effective on January 1, 2017, SB 3 applies the new minimum wage broadly to the public sector, defining covered employers to include “the state, political subdivisions of the state, and municipalities.” Charter cities and counties might have arguments on their side that they should not have to abide by the minimum wage. Because of the changing legal landscape, employees should seek counsel to assist them in determining which minimum wage laws apply to them.