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Recent changes to state and local minimum wage laws are based on employer size
Recently California's Division of Labor Standards Enforcement (DLSE) issued FAQs concerning 2016 legislative changes that impact the state minimum wage in 2017 and future years.
The most notable change was the creation of a two-tier system in which a $10.50 minimum wage rate applies to employers with 26 or more employees and a $10.00 minimum wage rate applies to employers with 25 or fewer employees.
The FAQs do not provide concrete guidance as to how employer size is calculated, but do provide a glimpse into how DLSE might interpret the law. The lack of clarity in the FAQs will particularly frustrate some Southern California employers that must also comply with local minimum wage laws which, like their state counterpart, use a 26/25 employee cut-off, but a different test to determine employer size.
The DLSE guidance regarding the state test can be summed up as follows:
There are five local jurisdictions in California that use a two-tier minimum wage system based on whether an employer has 26 or more, or 25 or fewer, employees: the city of Los Angeles, the county of Los Angeles (unincorporated areas), Malibu, Pasadena and Santa Monica. Below we highlight differences in the local tests to determine employer size:
Finally, it is important to note California and these localities use different dates for their minimum wage increases.
The state's minimum wage increased to $10.50 per hour on Jan. 1, but only for employers with 26 or more employees; the minimum wage rate remains $10.00 per hour for employers with 25 or fewer employees.
However, a $10.50 per hour minimum wage rate for employers with 26 or more employees in the relevant local jurisdictions has been in effect since July 1, 2016.
The local rate for employers with 26 or more employees will increase to $12 per hour on July 1 (the state rate will not reach this level until, at the earliest, Jan. 1, 2019).
Currently, in all of the above-referenced local jurisdictions there is no specific minimum wage rate for employers with 25 or fewer employees (so the $10.00 per hour state rate applies), but this will change on July 1, when a $10.50 per hour local rate takes effect.
Employers with a total of 25 employees overall (exempt and non-exempt) should not have significant issues determining that they fall into the small employer minimum wage category.
However, as outlined above, employers with 26 or more employees overall will have to analyze a number of different factors to determine whether they qualify as a small or large employer under their local jurisdiction rules, or under the state test if they are not in one of the five local jurisdictions that uses a two-tier minimum wage system.
Sebastian Chilco is an attorney with Littler in San Francisco. Sarah Ross is an attorney with Littler in Los Angeles. © Littler. All rights reserved. Reposted with permission.
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