Continued on page 10 wage, whereas employers with 26 or more employees must pay $15 minimum wage. However, the 2023 minimum wage increase will apply to all employers in the state, without a distinction between small and large employers as defined previously. Therefore, small employers (25 or fewer employees) must increase minimum wages by $1.50 per hour starting in 2023, compared to employers with 26 or more employees, which will face only a $0.50 per hour increase to their current minimum wage requirement. So, the relative impact of this increase will be most significant for small employers. 2. Local MinimumWage Ordinances Will Also Increase The prevailing inflationary trends have also resulted in higher local minimumwages for residents in certain geographical areas. On July 1, multiple local minimumwage hikes were enacted across California. Many local jurisdictions throughout the state have their own minimumwage requirements that are higher than the state’s minimumwage. Notably, these local minimumwage rates do not impact most exempt employees’ minimum salary and pay requirements. However, they generally apply to any non-exempt employee working within the geographic boundaries of the local jurisdiction, regardless of the location of a company’s offices or headquarters. Employers should stay updated on local minimumwage ordinances and state minimumwage rates to ensure compliance with all applicable minimumwage requirements. 3. California Employers May See Additional Minimum Wage Hikes Worker advocates across California seek to increase the state’s minimum wage to $18 per hour. Proponents of the Living Wage Act of 2022 have gathered more than a million signatures in an effort to put a measure on the ballot in November 2022 that would allow voters to decide whether or not to make the change. This measure would increase the state’s minimum wage by $1.00 each year starting in 2023 and would follow the same tiered approach as the state’s current minimum wage law. Under this measure, employers with 26 or more employees would be required to pay the $18 minimum wage by 2025, and employers with 25 or fewer employees would be required to pay the $18 minimum wage by 2026. We’re still waiting to find out if the Living Wage Act has collected enough certified signatures to appear on the November ballot. 4. Federal MinimumWage is Unlikely to Rise Anytime Soon California is not the only state facing pressure to increase the minimum wage. Twenty-one states rolled out wage hikes on January 1 this year, and 11 states are scheduled to increase their minimum wage rates in 2023 (Alaska, Arizona, Colorado, Hawaii, Maine, Minnesota, Montana, Ohio, South Dakota, Vermont, and Washington). Additionally, many local jurisdictions across the country are implementing their own wage rules. Notably, 20 states currently follow the federal minimum wage, which was last updated in 2009 and remains at $7.25 per hour (approximately $15,000 annually for a full-time employee). Although President Biden has pushed for a $15 federal minimum wage, there does not appear to be a congressional consensus to increase the federal rate in the near future. You should expect more efforts from worker advocacy groups to increase the minimum wage on a national scale. Among other developments, the IRS recognized the impact of inflation on consumers and recently increased the optional standard mileage rate for business travel to 62.5 cents per mile starting July 1. The IRS also announced inflation-adjusted increases for 2023 health care savings accounts and highdeductible healthcare plans. 5. MinimumWage Increases Have Additional Pay Implications A minimum wage hike in California affects other key wage thresholds, including the following: • Overtime and double-time rates. As employers face labor shortages, many employees work longer hours and more overtime to bridge the gap. Many employers also offer recruitment and retention bonuses to attract and retain employees in light of the competitive job market. With the increase in minimum wage, employers should also prepare for proportional increases to overtime and double-time pay rates. In 2023, the minimum rate for overtime would be $23.25 per hour and $31 per hour for double-time (based on a $15.50 minimum wage). Additionally, nondiscretionary bonuses and other incentive compensation paid to employees must be factored into employees’ regular rates of pay for overtime purposes, further increasing the costs for employee overtime and double-time hours. Therefore, you should review your practices to pay rates correctly. • Minimum salary requirement for “white-collar” exemptions. Employees exempt from overtime and meal and rest period requirements under the professional, administrative, or executive exemptions must be paid at least two times the state minimum wage to qualify for the exemption. The $15.50 minimum wage increase means that the minimum salary for white-collar overtime exemptions in California will increase to $64,480 annually or $1,240 weekly ($15.50 x 2 x 40 hours). • Minimum hourly earnings for exempt commission salespeople. Certain salespeople who primarily receive commissions will be exempt from overtime under the commissioned salesperson exemption (applicable only to Wage Orders 4 and 7) if they earn more than 1.5 times the state minimum wage. The minimum wage increase means that starting in 2023, these employees will need PUB YR 10 2021-2022 | ISSUE 4 9
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