DECEMBER 2006
MINIMUM WAGE INCREASE APPROVED
On September 13, 2006 Governor Schwarzenegger signed SB 1835 increasing the State’s minimum wage for nonexempt
employees. The first increase takes effect January 1, 2007 raising the minimum wage for non-exempt employees
from the current $6.75 per hour to $7.50 per hour. The second increase to $8.00 per hour takes effect January 1, 2008. (The
federal minimum wage will remain at $5.15 an hour.)
The increase may also impact “exempt” employees paid at the lower end of the salary scale in order for these
employees to maintain their “exempt” status. Exempt employees must be paid a minimum salary - currently the minimum
salary is $2,340 per month which is two times minimum wage. This minimum salary amount will increase to $2,600 per month
($31,200 per year) on January 1, 2007 and to $2,773.33 per month ($33,280 per year) on January 1, 2008. Any exempt
employee earning less than the minimum salary requirement will lose their exempt status.
In addition, there are exemptions for commissioned employees that are keyed to the minimum wage as well. For
employees who work as commissioned sales persons in a retail or service establishment, an exemption from overtime is
available where the employee earns at least 1.5 times the minimum wage and more than half the employees' wages are derived
from commissions. The minimum wage increase will raise the minimum commission requirement accordingly.
Other wage and hour issues are tied to the State’s minimum wage requirements, such as those employees who are paid
on a piece rate. California and federal minimum wage laws both require that employees receive no less than the minimum
wage for each hour worked. So if an employee is paid both an hourly wage or a piece rate, the employee's total compensation
per hour must at least meets the state minimum wage requirement. If the piece rate total of wages fall below minimum wage,
then you must pay at least the minimum wage.
What should you do:
- Review the hourly wages paid to your non exempt employees before January 1, 2007 to ensure compliance with the
new minimum wage requirements.
- Review and revise your salary structure for exempt employees to ensure compliance with the two times minimum
wage requirement.
- Consider whether the increase in minimum wage will impact other non-exempt or commissioned employees’
compensation.
- Post a new state minimum wage poster and wage order as of January 1, 2007 (when such become available).
