2006-18 -- Special Alert

STATE HIKES MINIMUM WAGE

On September 13, 2006 Governor Schwarzenegger signed a bill that will bump the state's minimum wage to $8.00 by 2008. The change in the minimum wage will take place in two increments. On January 1, 2007, California's hourly minimum wage - now $6.75 - will become $7.50. A year later - on January 1, 2008, the hourly minimum wage goes up to $8.00.

A change in the minimum wage has other impact as well. California's overtime exemption is keyed to the minimum wage. Exempt employees must earn a salary of no less than two times the state's minimum wage. The annualized salary figure for 2007 is $31,200.00 (2,080 x $15.00 = $31,200.00). In addition, there are overtime 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 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 payment figure accordingly.

The federal minimum wage will remain at $5.15 an hour. However, employers in California (and those outside of the state employing employees in California) must adhere to the state's new minimum wage requirement. Employers with minimum wage employees must implement an increase beginning January 1 to the $7.50 figure. In addition, overtime exemptions should be reviewed for compliance with these requirements.

One nuance of the new law relates to employees who make hourly wages and some commission or piece rate wages on top of that figure. Both the state and federal minimum wage laws require that employees receive no less than the applicable minimum wage for each hour worked. If an employee's wages consist of both a guaranteed hourly wage plus commissions, for example, the employer's obligation is to insure that the employee's total compensation per hour (inclusive of the commission) at least meets the state minimum wage requirements. Thus, for an employee currently making $6.75 an hour plus commissions, the employer need not raise the base minimum to $7.50 so long as the commission earnings which are added to the hourly wage meet or exceed the state minimum for each and every pay period. The same is true for hospitality industry employers that pay banquet and room service employees a percentage of the mandatory service charge in addition to the employee's hourly wage. So long as the employee's total hourly compensation (inclusive of the service charge distribution) meets or exceeds the state minimum wage, the employer is in compliance with the law.

Some employers take advantage of a provision allowing the Company to require employees to supply and maintain their own hand tools. To take advantage of this provision, the employee must make at least 2 times the minimum wage. The new minimum wage will affect this provision as well.

The state will no doubt issue new postings for employers to advise employees of the minimum wage requirements. Employers should check with their poster service to be sure that they have the current posters beginning January 1, 2007.

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