California’s 2020 Minimum Wage Increase to Affect Exempt and Nonexempt Employees

UPDATE: A reminder that on July 1, 2020, the minimum wage will increase in the jurisdictions listed under the "Effective July 1, 2020" section heading below – i.e., Alameda, Berkeley, Emeryville, Fremont, Los Angeles City, Los Angeles County, Malibu, Milpitas, Novato, Pasadena, San Francisco, San Leandro, Santa Monica, and Santa Rosa.

A new year means new changes to California’s minimum wage laws. California employers should take note of the following changes to state and local minimum wage laws, set to take effect on January 1, 2020, and will impact both nonexempt and exempt employees.

California State Minimum Wage

On January 1, 2020, California’s statewide minimum wage will increase to $13 per hour for employers with 26 or more employees and $12 per hour for employers with 25 or fewer employees.

This latest increase will move California one step closer to its goal of a $15 per hour minimum wage. In 2016, California enacted legislation setting forth gradual increases in the minimum wage until 2023; the minimum wage in California will continue to rise each year on a statewide basis until it reaches $15.00 per hour.

The applicable minimum wage depends on whether the employer has 25 or fewer employees or more than 25 employees, as demonstrated in the table below.

California Local Minimum Wage Laws 2020

In addition to California’s statewide minimum wage increase, many cities and counties have enacted their own minimum wage ordinances that exceed state wage requirements. If a local minimum wage rate is more generous to employees than the state minimum wage rate, employers must comply with the local law.

The charts below show changes to local minimum wage rates throughout California set to take effect on January 1, 2020, and July 1, 2020.

Effective January 1, 2020

For a PDF version of this chart, click here.

Effective July 1, 2020

For a PDF version of this chart, click here.

* Special minimum wage rates often apply to hotel employees and non-profit employees, which the above tables do not capture.

2020 California Salary Increases for Exempt Employees

For individuals to qualify as exempt employees, California requires that:

• They perform exempt duties more than 50% of their work time, and
• Exempt executive, administrative, and professional employees earn a salary of no less than two times the state minimum wage for full-time employment. The minimum annual salary is based on the current state minimum wage, calculated as follows: minimum wage  x  2  x  2080 hours.

Accordingly, effective January 1, 2020, the minimum salary threshold for these exemptions is as follows:

• $54,080 per year (or $1,040 per week) for employers of 26 or more employees
• $49,920 per year (or $960 per week) for employers of 25 or fewer employees

California’s increased minimum wage will also impact commissioned inside salespeople. Under California law, commissioned inside salespeople are exempted from the state’s overtime laws if the employee earns more than 1.5 times the state minimum wage and more than half of the employee’s compensation represents commission earnings.

Thus, in order to maintain their exempt status, commissioned inside salespeople will need to earn more than $19.50 per hour (26 or more employees) or $18.00 per hour (1-25 employees), whichever rate is applicable.

Key Takeaways

Employers should ensure to comply with both state and local minimum wage laws. As mentioned above, where a local minimum wage rate exceeds the state minimum wage rate, employers must comply with the local rate.

Employers should also review compensation for exempt employees to ensure that the applicable salary threshold is satisfied. Where the salary threshold is not satisfied, the employer should consider whether to increase compensation to meet the salary threshold or reclassify the employee as nonexempt.

For a summary of other significant changes in store for California employers in the new year, see our advisory here.