denatale.shannon.052By amending California Labor Code section 1182.12, Senate Bill 3

[1] will raise California’s [2] hourly minimum wage from $10 to $10.50 on January 1, 2017, then to $11 the following year, and then by $1 annually until 2022, at which point the minimum wage will reach $15 per hour.  Businesses with 25 or fewer employees have an additional year to comply with each yearly increase, meaning they will have until January 1, 2018 to raise the wage to $10.50, and, ultimately, until January 1, 2023 to reach $15 per hour for their minimum wage employees.  If your business currently employs 25 or fewer people, consider the beneficial effect of this small employer feature before adding additional employees.For some time, California employers have been aware that the minimum wage may be increased to $15 per hour.  Senate Bill 3 flew through the Assembly and Senate last week, and was signed into law by Governor Jerry Brown this morning.  Voters expected to see the California “Fair Wage Act of 2016” $15 Minimum Wage Initiative on the November 2016 ballot.  In light of Senate Bill 3’s swift enactment, however, this initiative will presumably be withdrawn from the ballot.

This new legislation also contains a provision allowing the Governor to pause the scheduled increases.  By July 28, 2017, and by July 28 every year thereafter until the minimum wage reaches $15, the director of finance will evaluate whether the economic conditions and the state general fund can support the scheduled minimum wage increase.  Among the economic considerations are: (1) the forecasted budget deficit, (2) negative job growth, and (3) retail sales.  Based on such considerations, the Governor may, on or before September 1 of each year, temporarily suspend the minimum wage increase scheduled for the following year.

As you might suspect, $15 per hour is not the end of the potential increases.  Starting in 2024, the minimum wage will increase annually up to 3.5%, based on inflation.  By August 1 each year thereafter, the director of finance will calculate the adjusted minimum wage.  If the rate of change is negative, there shall be no increase or decrease in minimum wage for the following year.

Given these changes, it is important that employers remember and abide by the Wage Theft Prevention Act of 2011, requiring employers to notify employees in writing of any changes in their rate of pay within seven calendar days from the date the change was made.  Itemized Pay Statements must also reflect the increased rate of pay.  Don’t become an easy target for employee lawyers; make sure these adjustments occur timely.

Please note that this rise in minimum wage potentially affects many non-minimum wage employees.  The salary of exempt employees falling under the “white collar” exemptions (administrative, executive, and professional employees) must be double the minimum wage. [3]  Thus, as the minimum wage increases, you will need to confirm that the salaries of such exempt employees remain at least twice that wage.  Similarly, the inside salesperson exemption requires that such employees earn more than 1.5 times the minimum wage, and that commissions make up more than one-half of the employee’s earnings each week.  Employees compensated on commission only, along with piece-rate employees, are required to earn no less than minimum wage for non-productive work time.  Meal and lodging credits will also need to be adjusted.

Obviously, you and your business have a lot to think about and do.  Now that the Labor Commissioner has the authority to hold individuals personally liable for wage and hour violations [4], it is even more important to ensure that these complex rules are being followed.  We strongly recommend that you consider an employment law audit.  For further information, please call one of the attorneys in our Employment Law Practice Group.

[1] Senate Bill 3 also includes amendments to Labor Code sections 245.5 and 246, providing sick leave for In-Home Supportive Service workers starting in July 2018.

[2] Note that certain cities and counties in California have a higher minimum wage.  To the extent the local minimum wage is higher than the new California state minimum wage, the local minimum wage controls.  Santa Barbara County and its cities do not have local laws governing minimum wage at this time.

[3] Note that we are still waiting on the federal government to publish final rules relating to the federal white collar exemption.  Please see this Advisor,  keeping in mind that the rules will likely be finalized in July 2016 and go into effect 60 days later.  These laws will also affect California employers.

[4] Labor Code § 558.1.

Shannon DeNatale Boyd, Attorney

(Direct) 805.966.7599