California’s minimum wage increased to $9.00 per hour on July 1, 2014 and will increase to $10.00 per hour on January 1, 2016.  It is important to keep in mind that this is far more than a transactional adjustment of a few payroll numbers.  There are some significant administrative, compliance and employee relation considerations directly connected to the increase.  Here are the Top 10 action items that should always be considered when the minimum wage increases in California:

     1. Salary Test for Exempt Employees

Anyone classified as exempt under one of the “white collar” exemptions (executive, administrative, professional) must earn a monthly salary that is at least double the state’s existing minimum wage  This works out to $3,120 (as of July 1, 2014 and will increase to $3,467 in January 2016.  Of course, the salary test is only one of the requirements for qualifying for an overtime exemption.  Please continue to monitor the duties requirements vigilantly.

     2. Exempt Pay Rate for Commissioned Salespeople

Check the pay rate for any exempt, commissioned salespeople.  These classifications are covered under Wage Orders 4 and 7.  For this exemption to be valid, the employee must derive more than half of their income from commissions, and must earn more than 1.5 times the state’s current minimum wage for all hours worked.  This works out to $13.50 per hour ($2,340 per month), going up to $15.00 per hour ($2,600 per month) in January 2016.

     3. Meals and Lodging

Meals and lodging generally cannot be credited against the minimum wage without a voluntary agreement, in writing, between the employer and the employee. The maximum rates of credit for meals and/or lodging that can be used to meet part of the employer’s minimum wage obligation increased as of July 1, 2014 and will increase again on January 1, 2016.

     4. Poster Updates

The Department of Industrial Relations requires employers to post current information related to wages.  The minimum wage increase requires an updated poster (MW-2014).  This poster includes both the rates for the July 1, 2014 increase and the 2016 increase, as well as the meals and lodging rates through the 2016 increase.

     5. Union Employees

Section 514 of the California Labor Code states that, for union employees, daily overtime may not apply “if the agreement expressly provides for wages, hours of work, and working conditions of the employees, and if the agreement provides premium wage rates for all overtime hours worked and a regular hourly rate of pay for those employees of not less than 30% more than the state minimum wage.”  Consequently, if you have a CBA with different overtime premiums than authorized by the Wage Orders, you should verify that union employees are earning at least 30% more than the new California state minimum wage.

     6. Tool and Equipment Exemption

If you require that employees have certain tools or equipment, (or if such tools are required to perform the job), it is generally the employer’s obligation to provide and maintain them.  However, any employee paid at least twice the minimum wage, may be required to provide and maintain hand tools and equipment customarily required to perform their trade.  The hourly rate is now $18.00.

     7. Uniform Maintenance Allowance

Section 9 of each of the Wage Orders imposes obligations on employers for uniforms and equipment.   The over-riding concern is to ensure that uniform maintenance costs do not bring the employee’s actual pay below the minimum wage.  If you are providing the maintenance allowance, on a weekly basis, this should be equal to an hour’s pay (as long as one hour is a realistic maximum expectation of the maintenance time required) at the minimum wage (now $9.00).

     8. Trainee Rate

If you bring employees on as “Learners,” in a specific occupation for which they have “no previous, similar or related experience,” they may be paid not less than 85% of the minimum wage rounded to the nearest nickel – for the first 160 hours of employment.  This rate is currently $7.65 per hour and will increase to $8.50 per hour in 2016.  Be sure to check that you are following the proper guidelines on any employees designated as “Learners.”

     9. Split-Shift Premium Rate

The split shift premium is referenced in Wage Orders, section 4(c), and requires that:  “When an employee works a split shift, one (1) hour’s pay at the minimum wage shall be paid in addition to the minimum wage for that workday, except when the employee resides at the place of employment. “  The math is tricky for determining if the premium rate is in effect; but, if you do have split shifts that impact minimum wage (or close to minimum wage) employees, remember the premium rate is now $9.00.

     10. Other Payroll and  Compensation

Many other pay arrangements are potentially impacted by a minimum wage increase, including piece rates, overtime rates, meal penalty rates and vacation payouts/accruals.  Be sure to double-check your payroll.   Finally, keep in mind that $9.00 – $10.00 per hour may not have been an entry-level rate in the past, but, now it is.  Depending on industry, competition for employees, company size, current pay ranges and career-pathing, it is probably a good idea to review your comp plan for potential compression issues up through about 50% above the minimum wage ($13.50 per hour).


About Bill Stephens: 

Bill Stephens is Employers Group’s Senior Client Service Director.  Since 2006 he has been supporting hundreds of Employers Group members – primarily in Los Angeles, the San Fernando Valley and Ventura County.  In this role, he helps member companies find solutions for complex HR, Organizational and training needs.
Prior to joining Employers Group, Bill spent 15 years consulting with and supporting HR departments offering a variety of industry leading solutions including language and cross cultural training, translation and interpretation services, audio and video training tools, risk management, employee benefits and HR administration and compliance support.  Bill’s client base has included everything from “mom and pop” start-up operations to multi-national Fortune 50 corporations.
Bill also has extensive executive leadership experience and has a BA from the University of Missouri-Columbia and a MA from George Washington University in Washington, D.C.

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