Minimum Wage Increase Effective January 1, 2023 for ALL Employers
On July 27, 2022, the California Department of Finance issued a letter certifying a 3.5% increase to the state’s minimum wage bringing it to $15.50/hour, effective January 1, 2023. Unlike in prior years, there will not be a lower minimum wage rate for small employers with 25 or fewer employees. Instead, the minimum wage will be the same for all employers regardless of size. This means a $1.50 increase for small employers who had expected a jump from the current rate of $14/hour to $15/hour in 2023, and an unexpected .50 cent increase for large employers (26 or more employees).
In addition, because the exempt salary threshold is tied to the minimum wage rate, it will also be increasing. For 2023, employers, regardless of size, will be required to pay a minimum salary of $64,480 in order to continue to classify an employee as exempt. For small employers, this means a significant increase in pay for those currently paying their exempt employees the minimum salary of $58,240. Large employers paying the minimum salary will also have to implement an increase from the current threshold of $62,400.
It is important to remember that employers must meet both the salary and duties requirements in order to classify an employee as exempt. Failing to pay the minimum salary can destroy the exemption and lead to misclassification claims even if the employee spends 50% or more of their time performing exempt tasks. Misclassification claims often involve serious exposure for unpaid overtime and meal and rest break penalties, making audits of your exempt employees’ salaries and job duties a priority for your business.
According to the Department of Finance, the rate increase is intended to help curb the impact of inflation. Even so, many employers will see the rate increase as a significant challenge. If you have questions about the rate increase or the consequences of misclassifying an employee as exempt, please reach out to a SMT employment law attorney.
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Spaulding McCullough & Tansil LLP
Employment Law Group