California Governor Jerry Brown Signs $15 Minimum Wage Bill

Today Governor Jerry Brown signed Senate Bill 3, which will gradually increase the state’s minimum wage from its current level of $10 per hour to $15 per hour by 2022.  Both houses of California’s legislature passed the bill on March 31 to great fanfare, but the Governor waited until today to give formal approval, presumably to avoid signing the bill into law on April Fool’s Day.

The new law will increase the state’s minimum wage from $10 per hour according to the following schedule:

For employers with 26 or more employees:

January 1, 2017: $10.50 per hour
January 1, 2018: $11.00 per hour
January 1, 2019: $12.00 per hour
January 1, 2020: $13.00 per hour
January 1, 2021: $14.00 per hour
January 1, 2022: $15.00 per hour

For employers with 25 or fewer employees, each increase will be delayed by one year as follows:

January 1, 2018: $10.50 per hour
January 1, 2019: $11.00 per hour
January 1, 2020: $12.00 per hour
January 1, 2021:  $13.00 per hour
January 1, 2022: $14.00 per hour
January 1, 2023: $15.00 per hour

Beginning in 2024, the minimum wage will increase annually up to 3.5 percent based on the United States Consumer Price Index for Urban Wage Earners and Clerical Workers, rounded to the nearest ten cents.  The new law does not preempt local minimum wage ordinances that have been adopted by several cities in California in recent years, so local governments remain free to enact minimum wages higher than the state minimum.

Beginning July 1, 2018, the new law will also phase in paid sick leave for in-home supportive care workers, who were excluded from the state’s paid sick leave law that took effect in 2015.

The new law will also gradually increase California’s minimum salary for so-called “white collar” (executive, administrative, and professional) exempt employees, which is set at twice the state minimum wage for a 40-hour work week.  Under the current $10 state minimum wage, California’s minimum salary is $800 per week or $41,600 per year.  Unless the legislature acts to de-couple the minimum exempt salary from the minimum hourly wage, the minimum salary for white collar exempt employees in California will rise according to the following schedule:

January 1, 2017:      $840 per week / $43,680 per year
January 1, 2018:      $880 per week / $45,760 per year
January 1, 2019:      $960 per week / $49,920 per year
January 1, 2020:      $1,040 per week / $54,080 per year
January 1, 2021:      $1,120 per week / $58,240 per year
January 1, 2022:      $1,200 per week / $62,400 per year

The minimum salary for white collar exempt employees under the FLSA is currently just $455 per week ($23,660 per year).  However, the Obama administration’s plan to change the FLSA regulations to raise that minimum to at least $970 per week ($50,440 per year), and then annually adjust the minimum to keep pace with inflation, is likely to take effect in the summer or fall of 2016.  Any white collar employee in California must be paid a salary high enough to satisfy both the state and federal minimums to be exempt from overtime for hours worked in excess of eight per day or 40 per week.

Employers should immediately begin planning to adjust to the new law, which critics describe as a “job-killer.” The economic impact of a $15 minimum wage remains to be seen, and given the implementation schedule the new law’s effects will be gradual.  But at a minimum we know this much is true: (1) Minimum wage workers who remain employed will see a wage increase; and (2) Those who are laid off or cannot find employment under the new law will have an effective minimum wage of zero.

Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

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