California’s Inflation Driven
Minimum Wage
In 2016, the California state legislature passed Senate Bill 3 (SB3), known as the Fair Wage Act of
2016, with the intent to ensure all laborers within the state receive a wage that will financially
support them and their families. To achieve this purpose, SB3 was designed to increase the state’s
minimum wage rate $1 per hour, every year, until to the wage rate increased to $15 per hour by
2023 across the state, regardless of the business’s size. In addition, a provision within SB3 also
allowed for an inflation-based wage rate increase of 3.5% if inflation was to increase.
Thus far, the state’s Department of Finance has projected inflation to exceed 7.6%, and therefore,
trigger a new wage rate increase of 3.5% for January 1, 2023.
As for today, the state’s minimum wage is based on the business’s number of employees (≤25
employees at $14 per hour and >26 employees at $15 per hour). And as noted, SB3’s intent is for
all businesses, regardless of size, to be at $15 by January 1, 2013. However, with inflation at its
highest in over 40 years, this wage rate is now expected to be adjusted by 3.5%; an inflation-based
wage rate increase to $15.50 per hour, regardless of the number of employees assigned.
Unfortunately, for the small business, this will increase their overall labor costs by a minimum of
10%; labor costs that may be hard to absorb during these inflationary times.
That’s Just The Beginning
Although all businesses can expect the state’s minimum wage rate to be at $15.50 per hour by the
beginning of next year, worker activist across the state are further advocating the state’s minimum
wage rate to be at $18 per hour. Advocating for the Living Wage Act of 2022, activist have
gathered over a million signatures thus far in an effort to place a measure on the November 2022
ballot. If successful in the collection of certified signatures, voters will then be allowed to vote and
decide whether or not to make the change.
If voted in favor for, the new Act would increase the state’s minimum wage by $1 per hour for
each year starting in 2023. It would also follow a tiered approach similar to SB3; >26 employees at
$18 per hour by 2025 and ≤25 employees at $18 per hour by 2026.
The Inherent Implications
There is no doubt the state’s planned and proposed minimum wage rates will impact all
businesses. Even more so will be the small business, as they will need to consider other factors
that will increase their labor costs dramatically as they work to absorb these costs in today’s
economy.
Overtime and Double-Time Rates
Due to continued labor shortages, many businesses are
requiring longer hours from their employees with overtime and double-time to fill that gap.
Based on the anticipated $15.50 minimum wage, the new minimum rate for overtime and
double-time would calculate to $23.25 per hour and $31.00 per hour respectively.
Minimum Salary for the Salaried-Exempt
Due to the exemptions (overtime and meal/rest periods) afforded with salaried-exempt employees, salaried-exempt employees must be paid at least two times the state’s minimum wage rate. Based on the anticipated $15.50
minimum wage, the new minimum rate for salaried-exempt employees would calculate to $64,480 annually or $1,240 for each and every week.
Non-Sales Activity and Rest-Period Pay
Commissioned and Piece-Rate employees will
also need to be paid at the $15.50 minimum wage for all non-sales activities, non-
production activities, and/or rest period times. This will include holidays, vacation,
training, idle time, or any time the employee is at work but not producing income for the business.
Split-Shift Premiums
Employees required to work split-shifts are entitled to an extra hour of pay and are required to be paid at the $15.50 minimum wage rate.
Preparations for What’s To Come
With the state’s minimum wage increase set to take place less than six months away, businesses
will need to reexamine their financial plan to determine the impact to come on their business
operations. Businesses may also need to adjust their consumer pricing to ease and offset the
increased labor costs that are yet to come.
Businesses will also need to reexamine the salary of those currently employed and above the
anticipated minimum wage rate increase. As this wage rate increase comes to fruition, businesses
will be pressured to increase the wages across their organization. Many employees currently
above the minimum wage rate will expect (and possibly demand) an increase; citing the wage rate
increase given for less skilled or experienced workers.
Lastly, businesses should consider auditing their pay practices and compensation plans to prepare
for any updates needed in policies and practices. As wage rates continue to rise, the potential
exposure and liability for noncompliant employment practices rise as well.
Thank you,
Your VertiSource HR Team
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