2026 Minimum Wage Alert: How California’s New Pay Rules Impact Your Business

With 2026 on the horizon, California employers face another round of pay rate updates.

Starting January 1, 2026, the state minimum wage will rise to $16.90 per hour (up from $16.50), based on the U.S. Consumer Price Index (CPI). This applies to all employers, regardless of size.

But remember: this is the floor—not the ceiling. Employers must also account for local ordinances and industry-specific rules. For example:

  • City and county rates often exceed the state minimum.
  • Health care workers will see rates climb to $24 per hour mid-year under phased implementation.
  • Fast-food employees remain at $20 per hour, a rate already in effect.

Impact on Exemptions and Salary Thresholds

The increase affects more than hourly wages. The minimum salary test for the standard exempt classifications (administrative, executive, and professional) will rise to:

  • $70,304.00 annually
  • $5,858.67 monthly

Other considerations include:

  • Commissioned salespersons: To qualify for the inside salesperson commission overtime exemption that is available under certain Wage Orders, the salesperson’s regular rate for the pay period must exceed 1.5 times the California minimum wage (i.e, $25.35 per hour in 2026), and commissions must make up more than 50% of earnings.
  • Employees providing their own tools: Employees who bring their own tools of the trade (such as service technicians) must be paid at least double the California minimum wage i.e., $33.80 in 2026) average per hour for all hours worked.

Action Steps for Employers

  • Audit payroll systems to adjust for the new minimum wage hourly rate
  • Update pay calculators with the new base minimum wage rates plus any commission overtime exemption formulas that include the 1.5 x minimum wage qualifier.
  • Update compensation agreements
  • Confirm compliance with local and industry-specific requirements.

California auto dealerships are especially impacted each year with minimum wage adjustments as commission employees can be found in sales, service and parts departments, and service technicians often bring their own tools.

The new year will be here before we know it... start planning now to avoid costly missteps in 2026.

California business leaders:

Major pay rule changes are ahead. Is your operation ready? Don’t wait for 2026—read our article to get ahead of the curve.