On July 27, 2022, the Director of California’s Department of Finance sent a letter to Governor Gavin Newsom and other state officials, noting that the Department had determined poor economic conditions necessitated expedited increases to the minimum wage due to changes in the consumer price index (CPI) from July 1, 2021 through June 30, 2022. Because the state’s minimum wage law is tied to the CPI, it will require the state to accelerate minimum wage increases faster than expected, which means that 2024 rates will be implemented in 2023. Rather than, as expected, a $15 per hour minimum wage being applied to employers of all sizes in 2023, the minimum wage will instead increase to $15.50 per hour for all employers, on January 1, 2023.
The change to the minimum wage rate will also affect the salary level for employees who are exempt from state minimum wage and/or overtime requirements because the state’s salary level for the executive, administrative and professional exemptions is also tied to the state’s minimum wage rate, and is calculated as two times the state’s minimum, times 40 hours per week (based on full-time employment). For 2023, the calculation is: $15.50 x 2 x 40 x 52 = a minimum salary of $64,480 per year. The state’s salary level for the computer professional exemption is also adjusted each year based on the CPI; the hourly rate and alternative annual salary for computer professionals has yet to be announced.
The acceleration will also impact commissioned inside sales employees (1.5 times the minimum wage) and the dollar amount of a sub-minimum wage an employer might be able to pay certain employees.
Next Steps for Employers
Before January 1, 2023, employers should review current pay rates for both non-exempt and exempt employees, to see how those amounts compare to what will be required under the law to determine if adjustments are necessary and feasible and whether reclassification may be needed for any employees who are currently exempt.
Employers must also be mindful of any localities that have established minimum wage ordinances for non-exempt workers and should compare the $15.50 against what an applicable locality (if known) or might (if annually adjusted) require on January 1, 2023. Should a locality’s minimum wage exceed the state’s minimum wage, employers must pay employees the higher rate.