Prepare now for the 2024 minimum wage increase…
Just as employers throughout the state had gotten used to the current $15.50 minimum wage, and many mid-year increases took place in various cities throughout the state, the California Department of Finance has announced that the state minimum wage is set to increase to $16 per hour on January 1, 2024.
California Labor Code Section 1182.12
Many business leaders are asking, “why is there another increase?” The state mandates an increase in minimum wage when certain inflation-related events reach specific thresholds. California Labor Code requires the Director of Finance to make an annual determination that economic conditions can support a statewide minimum wage increase and certify to the Governor and Legislature that such conditions are met.
Specifically, the CPI (Consumer Price Index) for Urban Wage Earners and Clerical Workers increased by over 6% in the time period of July 2022 to June 2023 as compared to the previous 12-month period. The director calculates and recommends the increase using one of the following options:
A 3.5% increase or
The actual rate of change per the U.S. CPI (6.16%)
Full-Time Exempt Employees Are Impacted
This new increase will not just impact hourly employees. The hourly increase also adjusts the minimum salary requirement for salaried, exempt employees, which is set at two times the hourly minimum wage x 2080 hours.
The current exempt minimum salary sits at $64,480 per year. The 1/1/24 increase means that as of January 1, 2024, exempt employees must earn a minimum of $66,560 per year to maintain their exemption status.
Preparing for the Increase
Remember that when a wage increase takes effect, employers must also ensure that wage statements are updated and issue non-exempt (hourly) employees a revised Wage Theft Protection Act Notice (under Labor Code section 2810.5). This notice should reflect the new rate of pay and overtime rates, and must be issued within seven calendar days after the time of the changes. Local government websites also provide required minimum wage postings.
Budgeting Tips
As you budget salaries for 2024, pay attention to exempt employees who are currently near the minimum salary threshold, such as foremen, leads, supervisors, etc. If this new wage increase does not look financially possible for you, now is the time to start analyzing your options. You may want to consider moving some salaried employees to an hourly (non-exempt) status in January. This would not be considered a demotion, nor would it mean your employees would have different responsibilities, however, this does come with its own set of challenges: tracking meal and break periods, overtime, scheduling issues, etc. CEA members can access our fact sheet “Exempt to Non-exempt—Employee Relations Tips” for additional guidance on our HR Forms page.
Remember, California employees are presumed to be non-exempt unless they meet the duties and salary test to be exempt. Best practice is to convert employees from exempt to non-exempt before the salary increases to level your budget.
If you are concerned about your compensation plan, want to design a brand new compensation program, or just modify your existing one, CEA can help. We offer Compensation Services including pay structure design & assessments, market pay structure maintenance assessments, and executive compensation plans among other things.
For a current list of all local minimum wages in effect, CEA members may refer to our Local Minimum Wage and Paid Sick Leave Fact Sheet on our HR Forms page for the various local requirements.