2021 and Another Minimum Wage Hike Coming

Just like earlier this year, because of the enactment of SB 3 (Leno) in 2016, California’s minimum wage is going up again. On January 1, 2021, the state’s minimum wage will be increased for all sizes of businesses, including “small employers,” who will see their fourth wage hike in recent years.

Under prior state law, the minimum wage for all industries increased to $10 per hour on January 1, 2016. Pursuant to SB 3, the minimum wage for all industries will be increased to $15 per hour by January 1, 2022 for businesses employing 26 or more employees and by January 1, 2023 for businesses employing 25 or fewer employees (referred to as “small employers”).

The current minimum wage for 2020 is $13 per hour, except for “small employers,” in which case it is $12 per hour.

The law does provide that the scheduled increases may be temporarily suspended by the Governor based upon him or her making certain determinations. Additionally, the law requires the Director of Finance, after the last scheduled minimum wage increase, to annually adjust the minimum wage under a specified formula. In the meantime, the wage will go up incrementally each year. However, in late July, Governor Newsom decided against postponing the planned increase in the state’s minimum wage. As a result, it will continue to increase next year.

The following lists the scheduled minimum wage increases for any business that employs 26 or more employees:

  • On January 1, 2021 to $14 per hour
  • On January 1, 2022 to $15 per hour

The following lists the scheduled minimum wage increases for any business that employs 25 or fewer employees:

  • On January 1, 2021 to $13 per hour
  • On January 1, 2022 to $14 per hour
  • On January 1, 2023 to $15 per hour

In February 2014, the Congressional Budget Office (CBO) issued a report regarding the impact of the proposal to raise the federal minimum wage to $10.10 an hour.  The conclusion was that, although some low-wage workers would receive a higher income through the increased minimum wage hike, “some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed, would probably fall slightly.”

To make matters worse here in California, these scheduled increases in the state’s minimum wage not only increase hourly employees’ wages, but also salaried employees’ compensation. In order for employees to qualify as “exempt” under any of the six exemptions in this state, they must meet the salary-basis test, which is two times the monthly minimum wage (as well as the duties test that is not impacted by the wage hike).

With the enactment of SB 3, there will be an increase of over $15,000 in wages per exempt employee in just a few short years. And, businesses will see their workers’ compensation premiums go up, as well as increased costs for uniform/tool reimbursements and overtime.

While the business community had argued that SB 3 should contain a regional minimum wage, this proposal was rejected. Some can appreciate that certain cities and counties in California may be able to afford an increased minimum wagebut other cities and counties are still struggling with high levels of unemployment. Employers in these areas will find it much more difficult to sustain such a dramatic increase in their labor costs.

Chris Micheli is a legislative advocate with the Sacramento governmental relations firm of Aprea & Micheli, Inc.

This article was originally published by Fox and Hounds Daily.

Comments

  1. What always seems to be ignored in these increases in minimum wage is the impact on the various welfare benefits low income workers receive, particularly families and single parents. Take a family of 4, husband, wife and 2 minor children where only the husband works earning $12 an hour or $24,960 per year. They get an IRS tax “refund” $8,595, $2,800 for the child tax credit and $5,795 for the Earned Income Tax Credit. On top of that, this family receives Section 8 housing assistance (subsidy), Medicaid health insurance, food stamps, free school lunches, etc. At $15 an hour ($31,200/year) their “refund” drops to $7,279 and because the various welfare benefits are all based on income which is now higher, their “share” of the cost of housing, medical, food stamps, etc goes up. Whether they actually benefit from the higher minimum wage is doubtful.

    • Kathy Farmer says

      Not to mention that because of the increased wages, the cost of living goes up. Prices for the consumer need to increase to cover the higher wages being paid, along with the higher costs to the employer. So depending on the low income job, the wage earner could lose their job or have their hours cut, so in fact they are actually sent further behind in being able to afford to live.

  2. Free enterprise works. Some people can afford to work for less because they have other sources of income and or want on the job training. School age kids are the ones that really get hurt by government overreach.
    Minimum wage takes away the first step of the ladder.

  3. Chris Renner says

    Minimum wage increases, sales tax increases, property tax increases, onerous regulations, COVID lockdowns, population exodus and a Depression on the horizon (2023). Small business don’t stand a chance in California!

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