California Minimum Wage 2025: New Rates and What They Mean for Workers and Employers

Quick Summary: California’s minimum wage in 2025 will increase from $16.00 to $16.50 per hour starting January 1, reflecting a 3.18% adjustment based on inflation. Source

California’s minimum wage is set to increase once again in 2025, continuing the state’s commitment to addressing wage growth and the cost of living. On August 1, 2024, the California Department of Finance officially announced that, starting January 1, 2025, the statewide minimum wage will rise from $16.00 to $16.50 per hour. This increase applies to all employers, regardless of size, and has significant implications for both workers and businesses.

How the California Minimum Wage 2025 Increase Was Determined

Under California law, once the state’s minimum wage reaches $15 per hour—a milestone achieved on January 1, 2023—the Department of Finance is required to annually review the minimum wage to determine if an adjustment for inflation is necessary. This review involves calculating the increase using the lower of two potential figures: a 3.5% increase or the actual rate of change in the U.S. Consumer Price Index (CPI) over the previous 12-month period.

For the period from July 1, 2023, to June 30, 2024, the CPI increased by 3.18%. As a result, the minimum wage will rise by 3.18%, bringing it to $16.50 per hour starting on January 1, 2025. This adjustment aims to help workers keep up with the rising cost of living, while balancing the financial impact on employers.

Impact on Exempt Employees

The increase in the minimum wage also affects the minimum salary threshold for full-time exempt employees. Currently, the minimum salary for exempt employees is $66,560 per year (or $5,546.67 per month). With the new minimum wage in place, this threshold will rise to $68,640 per year (or $5,720 per month) beginning January 1, 2025.

Employers need to ensure that their exempt employees’ salaries meet or exceed this new minimum to maintain their exempt status. Failing to comply with these requirements could lead to legal challenges, including the potential reclassification of employees from exempt to non-exempt status, which would necessitate the payment of overtime for hours worked beyond 40 in a week.

Special Considerations for Certain Industries

While the statewide minimum wage is increasing, it’s important to recognize that certain industries in California have their own minimum wage requirements. For instance, as of April 1, 2024, fast food workers covered under California Labor Code Sections 1474–1476 must be paid a minimum of $20 per hour. This rate is subject to change, as the Fast Food Council has the authority to implement further increases as early as January 2025.

Additionally, a new minimum wage for healthcare workers is expected to take effect by January 1, 2025. Employers in these sectors need to stay informed about these industry-specific rates to ensure compliance and avoid potential penalties.

Local Minimum Wage Rates

In California, various cities and counties have established their own minimum wage rates, which are often higher than the state minimum. Cities like Berkeley, Los Angeles, Milpitas, and San Francisco have implemented local ordinances that mandate higher minimum wages. Employers must comply with the higher local rate where applicable. However, it’s essential to note that only the state minimum wage is used to determine the minimum salary requirements for exempt employees.

Proposition 32

Looking ahead to the November 2024 ballot, California voters will have the opportunity to weigh in on Proposition 32, a measure that could significantly influence the future of minimum wage increases in the state. If passed, Proposition 32 would accelerate the pace of wage hikes across California. Large businesses would see their minimum wage rise to $17 per hour for the remainder of 2024 and to $18 per hour starting January 1, 2025. For small businesses with 25 or fewer employees, the minimum wage would be set at $17 per hour starting January 1, 2025, with an increase to $18 on January 1, 2026.

From 2027 onward, minimum wage adjustments would continue to be tied to inflation, as per the current formula.

Preparing for the Upcoming Changes

As California continues to lead the nation in wage policy, it’s crucial for both employers and employees to stay informed about the upcoming changes. Employers should review their payroll practices to ensure compliance with the new minimum wage laws and consider the potential impact on their budgets and operations. Employees, on the other hand, should be aware of their rights under the new wage laws and ensure they receive the appropriate compensation.

By understanding and preparing for the rising California minimum wage in 2025, both workers and employers can navigate the evolving economic landscape more effectively.