California Minimum Wage Increases to $16.50 in 2025

California employers should prepare for another adjustment to the state’s minimum wage. Effective January 1, 2025, the statewide minimum wage will increase to $16.50 per hour for all employers. This follows the 2024 increase, which brought the rate to $16.00 per hour.

As an employer in the Golden State, it is vital to stay informed about these changes to ensure compliance and proper payroll management. This update not only affects hourly employees but also has implications for salaried employees who are classified as exempt from overtime.

Understanding the 2025 Statewide Minimum Wage

Under California law, nearly all employees are entitled to receive the state minimum wage. The upcoming increase to $16.50 per hour is a mandatory adjustment for all employers, regardless of size. If any of your employees suspect they are being paid less than the required minimum wage, they have the right to file a wage claim with the local Labor Commissioner’s Office.

This annual adjustment is tied to inflation to help wages keep pace with the cost of living. Employers must ensure their payroll systems are updated to reflect this new rate for all pay periods starting on or after January 1, 2025.

Impact on Salaried Exempt Employees

The increase in the state minimum wage directly affects the salary threshold for employees to be classified as exempt from overtime. To qualify for the administrative, executive, or professional exemptions, an employee must earn a salary that is at least twice the state minimum wage for full-time employment (40 hours per week, 52 weeks per year).

With the new minimum wage of $16.50 per hour, the minimum annual salary for an exempt employee in California will rise. Employers must review the salaries of their exempt staff to ensure they meet the new threshold to maintain their exempt status. Failing to do so could result in significant liability for unpaid overtime.

Local and Industry-Specific Wage Rules

While the statewide rate is $16.50, many employers are subject to higher local minimum wage ordinances. A growing number of cities and counties have established their own rates that exceed the state’s requirement. If your business operates within one of these jurisdictions, you must pay the higher local rate.

Mid-Year Increases in 2025

It is important to note that many local ordinances schedule their wage increases for July 1st of each year, not January 1st. This means you may need to adjust wages twice in one year if you operate in one of these areas.

Here are a few examples of local minimum wages that are set to increase on July 1, 2025:

• Alameda: $17.46 per hour
• Berkeley: $19.18 per hour
• San Francisco: $19.18 per hour
• Los Angeles City: $17.87 per hour

These are just a few examples, and dozens of other municipalities have their own rates. It is crucial for employers to verify the specific minimum wage requirements for every city and county where their employees perform work.

Industry-Specific Minimum Wages

Adding another layer of complexity, certain industries in California have their own mandated minimum wages. For example, specific legislation has set higher minimum wages for workers in the fast-food and healthcare sectors. These industry-specific rates often surpass both state and local general minimums. If your business falls into one of these categories, you must comply with the applicable industry wage order.

Employer Responsibilities and Best Practices

To ensure full compliance, employers must take several proactive steps.

1. Verify All Applicable Wage Rates: Check the specific ordinances for each city and county where you have employees. Don’t assume the state rate is sufficient. The higher rate (state, local, or industry-specific) always applies.

2. Update Postings: Employers are required to display the current Minimum Wage Order in an area that is visible and accessible to all employees. These posters can be downloaded from the Department of Industrial Relations (DIR) website. You should also post any applicable local wage orders.

3. Review Pay Stubs: Ensure your employee pay stubs accurately reflect the correct rate of pay. Even for employees paid by piece rate, their total earnings must average out to at least the applicable minimum wage for all hours worked.

4. Streamline Payroll and Time Tracking: With various wage rates and mid-year changes, manual payroll processing is prone to error. Using a reliable time and attendance system can help you track employee hours, breaks, and overtime with greater accuracy. Modern payroll software can be configured to handle multiple wage rates, simplifying calculations and reducing compliance risks.

Staying ahead of these changes is key to running a compliant and efficient business in California. Take the time now to review your payroll practices and prepare for the January 1, 2025, adjustments.