August 2022: Inflation Disrupts California’s Minimum Wage Rate Schedule, Prompting Pay Increase in 2023

16 Aug

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Update Applicable to:
All employers in the state of California.

What happened?
On July 27, 2022, the Director of California’s Department of Finance sent a letter to Governor Gavin Newsom and other state officials, noting that the Department had determined poor economic conditions necessitated expedited increases to the minimum wage.

What are the details?
Due to changes in the consumer price index (CPI) from July 1, 2021, through June 30, 2022, the state’s minimum wage law requires the state to bring forward by one calendar year – from 2024 to 2023 – the date when it must annually adjust the minimum wage rate.

Rather than, as expected, a $15-per-hour minimum wage is applied to employers of all sizes in 2023, the minimum wage will increase to $15.50 per hour for all employers on January 1, 2023. The minimum wage law requires the rate adjustment to be the lower of 3.5% or the rate of inflation – 7.9% during the relevant period – and 3.5% of $15 is 50 cents.

The change to the minimum wage rate will affect more than just employees currently paid at or near the state minimum wage. It will also affect whether employees will (continue to) qualify to be exempt from state minimum wage and/or overtime requirements, the dollar amount of a sub-minimum wage an employer might be able to pay certain employees and whether various state laws apply to or exclude employees who are paid a specific percentage more than the state minimum wage, etc.

Below are some key points presented by our trusted source, Littler:

For more information, please see the links below:

Director of the California Department of Finance’s Letter

Article 1Article 2

What do employers need to do?
Employers should review the links provided above and review current pay rates for non-exempt and exempt employees to see how those amounts compare to what California law will require next year and what impact, if any, this unscheduled pay increase might have on their labor budget.

Vensure will continue to monitor this and will update once more information has been received.

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