Question: I recall that the minimum wage is going up soon.  I’m confused because I also keep hearing about the federal minimum wage increasing.  Which is going up, and what impact does that have on employers?
Answer: The possible increase of the federal minimum wage is a hot topic in political debates.  But the minimum wage that is going up in 2016 is California’s.  Effective January 1, 2016, California’s minimum wage is increasing to $10.00.  In addition to changing the pay rate for those employees currently earning the minimum wage, the increase in California’s minimum wage has other impacts as well.
Exempt Employees
Although the duties of employees are a key consideration in classifying them as exempt from overtime requirements, the threshold issue is the employees’ salary, which must be a monthly salary equivalent to no less than two times the state minimum wage for full time work.  Currently, with a minimum wage of $9.00 per hour, that threshold salary is $3,120.00 per month or $37,440.00 per year.   Effective January 1, 2016, with a minimum wage of $10.00 per hour, the salary equivalent goes up to $3,466.67 per month or $41,600.00 per year.  Employers should review their exempt employees’ salaries.  If they do not meet this new threshold, employers must either increase those employees’ salaries or reclassify them as non-exempt workers who are paid by the hour and who must clock in and out and be paid overtime depending on the number of hours they work.
Commissioned Employees
Under Industrial Welfare Commission (IWC) Wage Orders 4 and 7, an employee may be exempt from overtime requirements if the employee’s earnings exceed 1½ times the minimum wage, and if more than half of the employee’s compensation consists of commissions.  Effective January 1, 2016, employers relying on this exemption must ensure that these employees are earning more than 1½ times the minimum wage based on $10.00 per hour, or they could be liable for unpaid overtime.
Credit Toward Meals and Lodging
The IWC wage orders allow employers to provide meals or lodging and to credit the value of those against the obligation to pay the minimum wage, subject to certain limitations, and where there is a voluntary written agreement.  Employers with these written agreements must make necessary adjustments for the increased minimum wage.
Under the IWC wage orders, when an employer requires tools or equipment to perform a job, the employer will provide and maintain these.  However, if the employee’s wages are at least two times the minimum wage, the employer can require the employee to provide and maintain hand tools and equipment customarily required by the trade or craft.  Employers requiring employees to provide their own hand tools and equipment under this provision must ensure that those employees are paid at least $20.00 per hour effective January 1, 2016.
Finally, as mentioned above, there have been discussions about raising the federal minimum wage, which is currently $7.25 per hour.  If the federal minimum wage is raised to a rate higher than California’s, California employers will have to comply with the federal rate.