Minimum Wage Increase Effective January 1, 2025

Starting January 1, 2025, California’s state minimum wage will increase to $16.50 per hour for all employers, regardless of size.

This adjustment reflects a $0.50 increase from the previous rate of $16.00 per hour.

It’s important to note that numerous cities and counties* have established local minimum wages that are higher than the state rate. Employers must pay the higher of the applicable rates.

This state minimum wage increase also affects the salary threshold for certain exempt employees. Effective January 1, 2025, the minimum annual salary for a full-time exempt employee will be $68,640, equating to $5,720 per month.

Action Items for Employers

The state minimum wage influences various wage practices beyond compensating non-exempt employees earning the minimum rate. Key things to keep in mind include:

• Exempt Employee Salaries: Ensure that exempt employees meet the new minimum salary requirement to maintain their exempt status.

  
  

• Local Ordinances: Stay informed about local minimum wage laws that may impose higher rates than the state minimum.

  
  

• Wage Compression: Address potential wage compression issues arising from adjustments to the minimum wage. Wage compression occurs when employees with more experience or seniority earn pay rates that are close to, or the same as, less experienced employees due to increases in minimum wage or starting pay rates.

  
  

• Payroll Systems: Update payroll systems to reflect new wage rates and ensure compliance.

• Employee Communication: Clearly communicate wage changes to employees in a timely manner.

  
  

For specific guidance on how these changes may impact your organization’s pay practices, please reach out to your consulting team.

*This list is maintained by the UB Berkley Labor Center. Make sure you confirm the rates of pay for your location on your local website before making any decisions.