Another Year, Another Dollar: California’s Minimum Wage Increase

Mark your calendars! California’s minimum wage will increase from $9 per hour to $10 per hour on January 1, 2016. While this seems like a simple transition, a change in minimum wage affects considerably more compensation categories than just the base hourly rate.

Minimum wage employers in California must go through a checklist of compliance issues to ensure they don’t unintentionally run afoul of the law.

Base Wages

Obviously, the first step is to communicate with payroll processors (both in-house and outside vendors) to ensure that they are preparing for the hourly minimum wage increase. A failure to pay employees minimum wage entitles them not only to interest on the underpayment and attorneys’ fees but also to liquidated damages equal to twice the amount they were underpaid.

In addition, because a salaried exempt employee’s exemption depends on a salary that is at least twice the minimum wage, those salaries will need to be reviewed to determine whether they need to be increased also. Specifically, the minimum salary requirements for most exemptions under the Wage Orders will increase to $3,466.67 per month (or $41,600 per year) from $3,120 per month (or $37,440 per year).

Overtime

Overtime is based on the minimum wage rate so it will increase as well. This needs to be reflected in the itemized wage statements. Regular overtime will be at least $15 per hour and double overtime will be at least $20 per hour.

Commissioned Sales Employees

Some commissioned inside sales employees are exempt from overtime if they earn more than 1.5 times the minimum wage each workweek, and more than half of the employee’s compensation represents commission earnings. Their commissions need to be reviewed to determine whether they still qualify for the exemption under the increased minimum wage.

Meal and Lodging Credit

Most of California’s Wage Orders allow employers to credit meals and lodging furnished by the employer toward the employer’s minimum wage obligation (Section 10 of the Wage Orders). The new credit amounts for meals and lodging are listed on the official Minimum Wage Order (MW-2014). Of note for resident apartment managers specifically, the monthly allowance for rental credit toward earned wages is $564.81 for a single manager and $835.49 for a couple jointly employed. However, the employer cannot just apply those increased credits as of January 1, 2016 automatically. Because any agreement for rental credit must be in writing, employers must update their written agreements first and get those signed in advance so that as of January 1, they can apply the higher authorized credits.

Obligation to Notify Employees

In addition to undertaking the internal calculations and updates, employers must also ensure that they properly notify employees of the upcoming changes in compensation.

As always, employers must post California’s official Minimum Wage Order (MW- 2014) in a conspicuous location frequented by employees. The most current version of the official notice includes the January 1, 2016 wage increase. Earlier versions do not and must be replaced.

Employers must provide nonexempt employees (whether they are hourly or salaried) with a wage notice that complies with Labor Code Section 2810.5. For new employees, the written Notice to Employee must be provided at the time of hire. For existing employees, the Notice must be provided within seven calendar days after a change is made to any information in the Notice, such as:

• base rate of pay;
• overtime rates of pay; and
• allowances, such as meal or lodging credit, claimed as part of the minimum wage (Labor Code Section 2810.5).

Of course, the end of the year is also a great time to evaluate what worked and what didn’t in a company’s employment policies and make those corrections, along with the new minimum wage, going forward.