Last week, California governor Jerry Brown announced a deal to raise state minimum wage by 50 percent – from $10 to $15 per hour – by 2022. This wage increase raises wages for nearly 43% of California’s workforce. Brown’s decision for the increase was motivated by the belief that voters would pass such a proposal if it was included on the November ballot.
Under the deal, minimum wage would rise to $10.50 in 2017, $11 in 2018, and a dollar each year through 2022. While employees rallied behind this deal, it will inevitably raise costs for their employers. The 50% increase in minimum wage will apply to the state’s tipped workers as well, because unlike federal law, California law does not permit employers to pay tipped workers a lower minimum wage. Businesses with fewer than 25 employees will have an extra year to comply, meaning their workers will not receive $15 per hour until 2023. The deal also provides a caveat that the governor may temporarily block some of the initial increases in the event the economy slumps.
A wage of $15 per hour will raise compensation for full time employees to $31,200 per year. Moreover, employees must now make over $62,000 per year to be categorized as an exempt employee. With these two new rules in the game, employers are faced with a tough decision to either: (1) convert employees who are currently making between $41,000 and $62,000 to an hourly pay method, or (2) increase employees’ pay to over $62,000 per year so that they meet the exemption status.
Already among the highest minimum wages in the country, California will boast the highest state minimum wage if the deal is passed by state legislature. The federal minimum wage is currently $7.25 per hour.