California Minimum Wage Increase July 2014
The California minimum wage is rising to $9 per hour starting July 1, 2014.
This $1 increase over the current $8 minimum will make our wage floor one of the highest in the nation, but it’ll still be lower than our northern neighbors. In January 2014, Oregon’s minimum rises to $9.10 and Washington’s to $9.32.
The bill enacting California’s increase, AB 10, was amended shortly before being passed to remove a provision requiring annual indexing for inflation. Instead of regular annual increases, it calls for only one subsequent increase on January 1, 2016, when the minimum wage will rise to $10 per hour.
Increasing the wages of the lowest-paid workers is never without controversy, and AB 10 generated its share of arguments, counter-arguments, and battling statistics. Proponents contend that the minimum wage has not kept pace with the cost of living, citing a California Budget Project finding that the purchasing power of California’s minimum wage fell 24.8 percent between 1968 and 2008. On the other hand, business groups maintain that a 25-percent increase in the minimum wage over the next three years will unnecessarily drive up costs for all businesses and consumers.
Moving past the political to compliance issues, California’s new $9-per-hour minimum wage will affect more than just hourly workers. For example, the increase affects so-called “white collar” employees – executive, administrative, and professional employees who are paid salaries and are exempt from overtime.
California’s Labor Code section 515(a) requires employers to pay white-collar employees “a monthly salary equivalent to no less than two times the state minimum wage for full-time [note: 40 hours per week] employment.” Accordingly, beginning July 2014, the lowest-paid exempt managers will go from earning $640 weekly ($33,280 annually) to $720 weekly ($37,440 annually).
The minimum wage increase also directly affects another overtime-exempt category: the “inside sales” exemption. Under California’s Wage Orders 4 and 7, salespeople are exempt from earning overtime if their commissions exceed one and one-half times the state minimum wage ($13.50 per hour effective July 2014). Accordingly, employers must ensure that the earnings of qualifying exempt salespeople meet the new, higher standard.
Similarly, the higher minimum wage raises the threshold earnings for employees who may be required to provide and maintain their own hand tools and equipment. Although California employers typically must pay for or reimburse employees for all needed business equipment, the state Wage Orders exempt “hand tools and equipment” from this rule if employees earn at least twice the minimum wage ($18 per hour effective July 2014).
Another calculation affected by the bump in the minimum wage concerns the “split-shift” premium. When California employers impose a break in the workday (other than bona fide meal breaks) they may owe “split-shift” premiums to certain lower-paid workers. Basically, employees who work split shifts must be paid at least the minimum wage for all their hours worked, plus one hour. An increase in the minimum wage raises the amount that employees must earn daily and the employer’s payroll costs for split shifts.
Another impact of the minimum wage increase is a corresponding rise in the penalties due for late (or missed) paychecks. This violation qualifies as a minimum wage (and possible overtime) violation, which means 2014 brings increased expenses and penalties for clerical errors as well.
Finally, an estimated 815,000 Golden State employers will have to post a new minimum wage poster. According to the Senate Appropriations Committee, the state Department of Industrial Relations (DIR) will spend $400,000 to print up the new posters. If you’d like to help the state save money, we expect the new minimum wage poster to also be available for free downloading on the DIR’s workplace postings website.