California Employers Face Patchwork of New Minimum Wages in 2018

State exempt salary threshold will also rise

California Employers Face Patchwork of New Minimum Wages in 2018

California's minimum wage and overtime-exempt salary threshold will rise in 2018 at different levels depending on employer size. Complicating matters, many cities in the state will also raise their own minimum wages. Here's what employers should know for 2018.

[SHRM members-only toolkit: Complying with California Wage Payment and Hours of Work Laws]

Minimum Wage

California's statewide minimum wage will rise to $11 an hour (from $10.50) on Jan. 1, 2018, for employers with 26 or more employees and to $10.50 (from $10.00) for businesses with fewer workers. The state minimum wage will continue to rise each year until it reaches $15 an hour in 2022 for large employers and in 2023 for small employers.

But California businesses must consider more than just the state-level changes, as many cities and counties are increasing their minimum wages at faster rates.

"California has seen a virtual explosion of new wage ordinances that aim to set standards that exceed the state standards," said David Cheng, an attorney with FordHarrison in Los Angeles. "The trend of local cities passing new minimum-wage ordinances does not appear to be stopping any time soon, and there is no indication from the California state legislature that they intend to pass a law pre-empting these local ordinances."

Every local ordinance has its own nuances. Some locations—such as Berkeley, Mountain View and San Francisco—will reach $15 an hour in 2018. Each of these cities, however, has a different effective date for the new wage rate.

Some cities also have different rates based on employer size. For example, Emeryville already has a minimum wage of $15.20 for businesses with 56 or more workers in the city—but that rate will be raised to approximately $15.60 in July 2018 based on the Consumer Price Index. Smaller employers in Emeryville will need to raise their rate to $15 by July 2018.

Other cities—such as San Diego—won't have another wage hike until January 2019.

When determining which wage law is applicable, employers need to look at where the work is performed. "Minimum-wage ordinances are based on employee location, not employer location," said Karina Sterman, an attorney with Greenberg Glusker in Los Angeles. "Employers should therefore regularly—every six to nine months—check the wage ordinance of each city and county in which their employees work."

Employers are also well-advised to consult with employment counsel if they have not been paying the minimum-wage rate applicable to their workers, she noted.

Exempt Salary Threshold

In California, the salary threshold for the executive, administrative and professional exemptions to the state's overtime laws is directly tied to the state minimum wage. So when the minimum wage goes up statewide, so does the exempt salary threshold.

In addition to meeting certain duties tests, exempt employees in the state must earn a fixed monthly salary of at least double the minimum wage for full-time employment.

It is important to note that local minimum-wage ordinances do not affect the exempt salary threshold. "The exempt category is a state-based exemption, and the salary needed to qualify for the state exemption is specifically based on the state minimum wage," Sterman said.

Accordingly, the statewide minimum wage and exempt salary threshold will rise each year as follows for businesses with at least 26 employees:




Businesses with 25 or fewer employees will have an extra year to comply with each increase, which means the applicable exempt salary threshold will be $43,680 in 2018 (based on the $10.50 minimum wage) and $45,760 in 2019.

"My practical advice for businesses is to keep updated on new laws," Cheng said. They should also seek counsel regarding their pay practices, especially if they have workers in any of the local jurisdictions that carry standards stricter than state law, he added.


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