“Immediate” Minimum Wage Increase on the Ballot in California
California’s statewide minimum wage is currently set to increase to $16.50 on January 1, 2025. However, an “immediate” and steeper increase may take effect if California voters pass Proposition 32 this November.
In anticipation that the Proposition may pass, employers should be ready to implement compensation increases for those non-exempt hourly employees earning close to the current minimum wage (and for exempt salaried employees earning close to the minimum exempt salary threshold) immediately following the election.
What is the current state of California’s minimum wage law?
As of January 1, 2024, the statewide minimum wage is $16 per hour, regardless of employer size.*
Under the current law, on January 1, 2025, the statewide minimum wage will increase to $16.50.
In California, the statewide minimum wage also impacts overtime-exempt employees. Certain overtime-exempt classifications—such as the executive, administrative, and professional exemptions—require that the exempt employee meets certain job duty requirements and receives at least a minimum salary equal to two times the state’s minimum wage. The latter is called the “salary basis test.” Therefore, the current minimum salary threshold for such exempt employees in California is $16 x 40 hours x 52 weeks x 2 = $66,560.
When the statewide minimum wage increases on January 1, 2025 to $16.50, that exempt salary threshold will likewise increase to $16.50 x 40 hours x 52 weeks x 2 = $68,640.
*Certain industries (such as fast food and health care) and certain cities and counties have higher minimum wage standards than the state’s rate. Proposition 32 would not cancel out these higher wage requirements; the highest rate applicable to an employee will apply.
What Is Proposition 32?
Proposition 32 is California’s ballot initiative to raise the state’s minimum wage beyond the scheduled increases already in place. The Proposition, if passed, would amend the state’s Living Wage Act of 2022 to provide the following:
Effective “immediately” through December 31, 2024, statewide minimum wage is $17 per hour for employers with 26+ employees; and $16 per hour for employers with 25 or fewer employees.
From January 1, 2025 to December 31, 2025, statewide minimum wage increases to $18 per hour for employers with 26+ employees; and $17 per hour for employers with 25 or fewer employees.
From January 1, 2026, and until and unless adjusted by the state’s Director of Finance pursuant to the statute, the statewide minimum wage will increase to (or remain) $18 per hour for all employers.
As the current law already provides, after the preset increases run, the state’s Director of Finance then annually calculates an adjusted minimum wage. Specifically, on or before August 1 each year, the calculated adjusted minimum wage is equal to the lesser of 3.5% and the rate of change in the averages of the most recent July 1 to June 30, inclusive, period over the preceding July 1 to June 30, inclusive, period for the US Bureau of Labor Statistics nonseasonally adjusted US Consumer Price Index for Urban Wage Earners and Clerical Workers, rounded to the nearest 10 cents. That adjusted minimum wage then takes effect the following January 1.
While Proposition 32 directly impacts minimum wage for hourly non-exempt employees in the state, the law would also affect compensation requirements for many California-based overtime-exempt workers subject to the salary basis test described above. With a $17 per hour statewide minimum wage, such exempt employees would be entitled to receive at least $17 x 40 hours x 52 weeks x 2 = $70,720. Once the minimum wage increases to $18 per hour, the exempt salary threshold will likewise increase to $18 x 40 hours x 52 weeks x 2 = $74,880.
When Would Proposition 32 take effect?
Californians received voter guides stating that, if passed, Proposition 32 would take effect “immediately.” While that is not exactly the case, the more precise answer is not of much relief to employers who would need to take quick action to comply based on the results of the election.
To be more precise, Proposition 32 does not expressly state when it would take effect. Therefore, under the California Constitution, the amendment to California’s law and minimum wage would take effect “on the fifth day after the Secretary of State files the statement of the vote for the election at which the measure is voted on”.
We cannot know exactly when the statement of the vote for the 2024 election will be filed by the California Secretary of State. For reference, as to the November 3, 2020 general election, California Secretary of State Alex Padilla filed the statement of the vote on December 11, 2020. Under a similar timeline, this minimum wage increase would take effect before 2025. Moreover, under any timeline, Proposition 32 adjusts upward the planned increase already set to take effect for January 1, 2025.
What Should Employers Do to Prepare?
To help keep your company on budget and avoid a scramble for compliance in December and January, here are a few proactive things to consider doing between now and the election:
For employers with 26+ employees, review your list of California non-exempt employees earning below $18 per hour. If Proposition 32 passes, these employees may be entitled to an “immediate” increase to $17 per hour for the remainder of 2024; and another bump up to or above $18 per hour for 2025. (Employers with 25 or fewer employees should do the same for employees earning below $17 per hour, as they would be entitled to an increase to $17 per hour as of 2025.)
Likewise, review your list of California exempt employees. For those who are exempt under any of the exemptions that require they meet a minimum salary threshold, ensure that you continue to meet that minimum threshold even after each increase occurs (or, alternatively, prepare to convert exempt employees to non-exempt status). If the $17 per hour minimum wage applies to your company, then these exempt employees would be entitled to receive at least $70,720. Once the minimum wage increases to $18 per hour, the exempt salary threshold will likewise increase to $74,880.
Review local minimum wage ordinances. If your company has employees in a jurisdiction where the minimum wage is already higher than the statewide minimum wage, check to determine if the state’s increase impacts the local ordinance threshold.
Review your payroll settings to ensure that other minimum wage-related calculations and payments are adjusted accordingly. For example, the change to the minimum wage may impact items such as reporting time pay; cents-per-mile, piece rate, or commission payment “greater of” calculations; rest break pay for piece rate employees; and alternate rate activities (like driving time or non-productive time payments).
Run budget estimates with these new compensation thresholds to determine if other business expenditures may require adjustment.
Prepare sample communications and talking points for your HR and legal teams to communicate to employees if Proposition 32 passes and employees expect an instant increase in compensation, given that the vote count may not be finalized and the increase may not be set to take effect for a month or more beyond election day despite the state’s messaging in voter information pamphlets that the increase would be “immediate.”
Companies with California-based employees should work with their legal counsel to review these compensation requirements and assess their options to remain in compliance.