Minimum Wage Increases
By Kim Silvers, SPHR-CA
AB 10 increases the California state minimum wage from $8 per hour to $9 per hour effective July 1, 2014. The minimum wage will increase again on January 1, 2016 to $10/hr[1]. Many employers are scurrying to assess the impact of the minimum wage for their non-exempt (hourly) entry level positions. Some employers are not only raising their entry level wages, but looking at the ripple effect (what we call “wage compression” in the compensation world) for other non-exempt employees currently paid at or near the new minimum wage. The law does not require that everyone steps up in hourly pay rates because the lowest rate is increased. However, the costly impact of this internal equity issue is worthy of consideration.
California employers will need to post the 2014 Minimum Wage poster as well as the updated Industrial Wage Order for their specific business.
However, this minimum wage change has several other impacts to California exempt employees that many employers have not considered, even if they do not have minimum wage employees.
Exempt classifications: This increase will not only affect your employees who are paid below the new minimum wage, but will also result in an increase to the minimum salary for exempt level employees in order to meet the salary test for state wage and hour exemptions. Unlike federal law, the salary test for most CA exempt classifications is a monthly salary equivalent to no less than two times the state minimum wage for full-time employment. For example, the new exempt minimum salary for the executive exemption will move from $2773.33 per month to $3120.00 per month in July 1, 2014. We recommend you review your payroll records for your exempt employees to ensure you are meeting this new minimum.
There is a special exemption for Inside Sales covered by Industrial Wage Orders #4 and #7. An inside sales employee may be exempt from overtime if s/he earns more than 1.5 times the minimum wage each workweek, and more than half of the employee’s compensation is in commission earnings. (This is only an exemption for overtime and must be applied each workweek. All other provisions of the Wage Orders still apply, including recording time, and meal periods and rest breaks.)
Tools and Equipment: In some cases a job may require an employee to use specific hand tools or equipment. If the employee earns at least two times the state minimum wage then the employer may require the employee to furnish and maintain his/her own hand tools. (We see this often with auto techs.)
Commission payments: If you have a non-exempt commissioned employee who receives a “draw” or advance against commission earnings then the employee needs to receive at least minimum wage for time worked, including overtime for this advance payment. Of course, now this will need to be based on the new minimum wage.
Piece rate: An employee who works on a piece rate must be paid at least minimum wage for each hour worked. If the employee furnishes his/her own work tools then this is two times the state minimum wage. Keep in mind that piece rate workers must be compensated for all time worked (and rest breaks) based on the recent Downtown LA Motors case. An average of hours worked and total compensation will not fly in California based on this important case.
Meals and lodging rates: Also changing are the meal and lodging rates California employers may apply to calculating compensation for non-exempt employees. These rates are noted on the new minimum wage poster. Employers who offer these benefits will want to review their compensation plans to ensure they are appropriately adjusted.
Other minimum wages in CA: There are minimum wages higher than $9 per hour within our great state. For example, San Francisco[2] is now $10.74 per hour and San Jose is $10.15 per hour.
External Equity? While you’re looking at salaries for the positions affected by these minimum wage changes above, you may want to look at the market rates (“external equity” in the compensation world) for some of your key positions to ensure you’re paying base salary and incentives competitively. The Bureau of Labor Statistics offers free salary information for some positions at their site. Although the data matches may not be immediately current or a complete match, this information may be helpful for very common jobs that are similar across many industries. Silvers HR has also purchased a large national salary survey with thousands of positions. The survey data can be sliced to the employer’s local market. There is a fee for this survey data. Call us if you’d like to learn more.
Call us for more information (916) 791-8506
© 2014 Silvers HR, LLC
[1] The 2014 and 2016 minimum wage increases may not be the last we’ll hear about minimum wage changes. Senate Bill 935, which passed the California Senate and was sent to the California Assembly, is proposing to replace the approved minimum wage increases above with a larger increase to $13 per hour over a three-year period and tie the minimum wage to the California Consumer Price Index beginning January 1, 2018.
[2] San Francisco Mayor Ed Lee has recently introduced a proposed measure that would gradually bump San Francisco’s minimum wage to $15 an hour by July 2018.