Congratulations California with the implementation of SB 3 you have become the very first state to raise the minimum wage to $15.00 per hour.

minimum wageEmployers need to begin to prepare now for this wage increase.  Some industries will be hit much harder than others.

However, this will be a very big job killer especially for the following industries.

  • Restaurants
  • The Fast Food Industry
  • Automotive Repair Shops
  • Constructions Companies who require employees to supply their own tools.
  • Auto body Shops

 

Employers with 25 or less employees will have an additional year to figure out what they must do to make this work for them.  But this law is not good for business nor the employees.  The main reason that this is true is because this wage increase is going to mean a price increase to the consumer.

So as the wages go up for the next five years beginning in 2017 consumer prices will begin to rise shortly thereafter.

For employers with 25 or more employees the wages begin the assent to the $15.00 per mark January 1st 2017 with a 0.50 cent increase.  In 2018 there will be another 0.50 cent increase.  2018 will be the first year that employers with less than 25 employees must contribute.  The rate would increase $1 per year thereafter until 2022.

When the new minimum wage reaches $15 per hour for all businesses, wages will still continue to rise every year capping out at 3.5% to accommodate for the rate of inflation which is measured by the national Consumer Price Index.

There is a slight chance that in spite of SB 3 the minimum wage make not make it to the $15.00 per hour mark.  The reason for this is that until the minimum actually hits the $15.00 per hour.

This reprieve would only come to pass under the following conditions.

  • State Revenues Decline
  • A Decline in the Labor Market
  • A Budget Deficit

SB3 And What It Means To Employers

All employers must pay their employees no less than the minimum wage.  If the state has a higher rate of pay then the feds do the employer must pay the higher of the two.

Employees in California cannot sign their rights away so there is not employment contract that can be signed that will allow the employer to pay less.

Overtime:

The new minimum wage will also affect overtime. Beginning January 1, 2017, employees who work for  over 8 hours in a day or 40 hours in a week will be eligible for overtime pay at the rate of $15.75 per hour for time and one-half or $21 for double-time.

Exempt/Non-Exempt Classification

Naturally if you raise the minimum wage the overtime rates will go up and along with that so will the Exempt Employees rate of pay rise accordingly.

For an employee to qualify for the Administrative, Executive, or Professional Exempt Status, the employee must earn a monthly salary of at least twice the minimum wage for a full time employee.  This is addition to meeting all of the other requirements.  These requirements would based on the job description and the duties of the employee that performed on the job.

Now is the time to hold on to your hats because in 2022 this means that the annual salary of an exempt employee as described above will rise from the present level of $41,600 to at least $62,400.  This is an increase of almost $21,000.00

Similarly, certain commissioned inside sales employees under Wage Orders 4 and 7 can be eligible for an overtime exemption. Usually, the exemption is applicable if the employee earns more than 1.5 times the minimum wage each workweek, and in addition to that the employee must earn more than half of his/her wages from commission sales.

Employers will want to make sure that employees that are inside commissioned sales people continue to meet this test after the January 1 wage increase.

Notice Requirements

With the new minimum wage there will also be a new wage posting.  The posting requires will also include wage posting, itemized wage statements as well.

All employers must post California’s official Wage Order in a place that can be seen by all employees regularly. The current state and federal posting includes the increase for January 1, 2016; so there will be no requirement for a new wage order posting until 2017.

California employers for the purpose of complying with (Labor Code 226) must give each employee an itemized statement, at the time the employees’ wages are paid, this itemized statement is to be included on the paystub of the employees check.

The itemized pay stub must include the following information.

  • Any and all hourly rates that the employee worked during the pay period along with the corresponding number of hours that the employee worked at each hourly rate.

The fun does not quite end yet, In addition to itemized paystubs employers in California must also make sure that when they hire an employee that they fill out the form 2810.5 and give that to the employee.  Among other things this form will inform the employee at his or her rate of pay.  This form will also address the overtime rate of pay any allowances such as food or housing that are being used as part of the minimum wage.

Concluding Comments:

This is going to be a very important time for employers.  For those employers with less than 25 employees California Employers Services would encourage you to use the extra year to create a plan as to how you are going to deal with this new law.

It is also time to get involved with an organization such as the National Federation of Independent Business so that your voice can be heard giving small business the opportunity to stop these kinds of laws from passing.

Now is a great time to create a new business plan that will help you to attack this problem head on, maybe even hire a business coach.  The one thing I would encourage you not to do is to bury your head in the sand or to think that doing nothing will make all of this OK.