How California’s minimum wage increase affects you

Even if you already pay a higher local minimum wage rate

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Along with many of the new laws effective on January 1, 2018, the California minimum wage is rising once again, this time to $11 per hour for employers with 26 or more employees (those with 25 or fewer employees are on a 1-year delayed schedule, meaning they only go up to $10.50/hour this January).

But what if your city or county already requires you to pay a higher hourly wage?

Many of the metropolitan cities (LA, San Francisco, Berkeley, Sunnyvale, San Diego, and Santa Monica, among others) already require that employees working in the applicable city be paid at a higher local minimum wage rate (i.e., $12/hour for Los Angeles). Accordingly, those employers will need to continue paying hourly employees at the higher local rate.

Even so, the rise in the state’s minimum wage has other implications affecting even those employers subject to a higher local hourly rate (the illustrations below assume the employer has 26 or more employees):

Salaried exempt managers

Many of the state’s exemptions from overtime are tied to a minimum pay requirement. For example, overtime exemptions for managerial and administrative employees require (among other things) that the employee be paid a salary of at least twice the state minimum wage.

Accordingly, effective January 1, 2018, these employees must earn a salary of $45,760 per year ($3,813.33 per month), to qualify for the exemption.

Commissioned exempt employees

The state minimum wage increase also affects the calculation of the commissioned salesperson exemption, applicable to some salespersons, service advisors, and parts counterpersons. Part of the test for meeting the salesperson exemption is that the employee must be paid more than 1.5 times the state minimum wage for every hour worked in each pay period. Accordingly, even if the employee typically earns $12/hour, to be exempt, s/he must earn a total of more than $16.50 per hour for the pay period.

Service technicians who bring their own tools

Finally, if the dealership has its service technicians use their own tools, those employees must be paid double the state minimum wage for every hour worked. If the dealership provides tools to these employees, they would need to be paid the highest applicable minimum wage rate (i.e., a local rate, if it is higher than the state requirement), but if the employees provide their own tools, the dealership need only pay double the state minimum wage, even if it is lower.

Employers should remember to review their pay plans for compliance and update their minimum wage postings as of January 1, 2018 to reflect the current rates.