Navigating the 2024 Minimum Wage Increase in California

California has some of the most detailed and worker-friendly wage laws in the country. The state’s minimum wage rose to $16 per hour at the beginning of 2024, making it one of the top three highest in the nation. While the increase is a perceived win for minimum-wage workers, it has put businesses in quite a bind.

Learn more about the 2024 minimum wage increase in California, including potential implications for your business and how you can navigate these changes with the help of a lawyer for employers.

What Is the 2024 California Minimum Wage?

On January 1, 2024, the California minimum wage for all employees rose to $16 per hour. On April 1, 2024, the minimum wage for fast-food employees rose to $20 per hour.
California also passed legislation to raise the minimum wage for certain healthcare workers. However, the state has repeatedly pushed the date back, with the latest soft deadline set for

October 15, 2024. State legislators could push the raises for healthcare workers back again if they can’t lock down the funding necessary to pay for the increases.

As it stands, minimum wage employees at rural and independent hospitals will make $18 an hour when the new laws take effect. Individuals employed by any of the state’s 12 largest health systems will make $23 an hour. Ultimately, the law will increase healthcare worker raises to $25 an hour, but the raises will be gradual.

Several groups are exempt from the bill and will fall under the state’s general minimum wage law. These groups include employees who work at pharmacies, dental offices, and assisted living facilities, as well as physician groups with 24 or fewer doctors.

The Potential for More Increases in 2025

In November 2024, California constituents will have a chance to vote on Prop 32, which will raise the state minimum wage to $18 per hour. This new round of increases would take effect in 2025 for employers with 26 or more workers.

The increase will be spread out over two years for employers with 25 or fewer workers. Businesses in that category would have to raise their minimum wage by $1 in 2025 and another $1 in 2026.

How to Adapt to the Increase

California’s wage increases can put your business in a financial bind. Here are a few strategies to help you adapt.

Review and Adjust Your Payroll

Review your current payroll and identify all employees who are earning less than the new minimum wage. Make sure that you adjust their pay accordingly to ensure compliance and avoid fines.

If Prop 32 passes, you’ll have to make additional increases in 2025. It might be a good idea to crunch the numbers and see how another $1 to $2 increase would impact your total payroll costs.

Communicate With Employees

Be upfront with your staff about the changes and how they could impact your business. If you anticipate having to cut hours or scale back overtime, let them know. Transparency can help you avoid friction with your staff as you navigate these new changes.

Budget for Increased Labor Costs

The wage increase will inevitably lead to higher labor costs. Reevaluate your budget and make necessary adjustments to accommodate these additional expenses. Consider areas where you can cut costs or increase efficiency.

You can use contractors and learners to offset labor costs and avoid some of the increased expenses associated with the new minimum wage laws. However, it’s important for employers to consult with a lawyer to ensure you aren’t misclassifying employees as contractors or learners.

Revisit Your Compensation Structure

In addition to adjusting pay for minimum wage employees, consider how the increase affects your overall compensation structure. Ensure that wage adjustments are fair and consistent across your organization.

For example, suppose that a shift lead typically makes $18 an hour, which previously put them earning $3 an hour more than minimum wage workers. As of 2024, that gap has closed to just $2 per hour. If Prop 32 passes, your shift leads will make the same as your minimum wage staff. That compression can cause frustration among your more seasoned team members.

Consider upping pay for shift leads and managerial personnel. While you must keep your payroll costs at sustainable levels, you also have to maintain adequate pay gaps to incentivize workers to take on additional responsibilities.

Update Your Compliance Posters

California law requires you to hang certain posters in a conspicuous location in your business. A minimum wage order poster is among the required notices. Make sure you replace the outdated posters with 2024 versions that reflect the new minimum wage.

Challenges of the Minimum Wage Increase

The minimum wage increase creates three main challenges for your business, including:

Increased Labor Costs

The most immediate impact is the increase in labor costs, which can strain your budget. Suppose that you have ten full-time minimum wage employees who each made $15 per hour in 2023. They now make $16 per hour due to the 2024 updates.

If each person works 40 hours per week for 52 weeks, they will cumulatively work 20,800 hours. The $1 increase in minimum wage pay translates to $20,800 in additional payroll expenses.

Potential Price Increases

You may need to raise prices for your products or services to cover the higher labor costs. This could negatively impact customer demand and reduce your annual profits. It’s important to carefully plan any increases to maximize profitability while also providing good value to your customer base.

Wage Compression

Wage compression can crush morale and cause friction among your staff. If you increase minimum wage employee pay but don’t raise other workers’ hourly rates by a corresponding amount, some team members will become frustrated. Managerial staff may become particularly frustrated as the gap between them and those they supervise narrows.

How a Lawyer for Employers Can Help You Navigate Wage Increases

A lawyer for employers can help you understand what your obligations are under California wage laws. They can provide guidance on exemptions — using contractors to help meet demand without driving up payroll costs. They will ensure you operate within California’s strict legal requirements.

If you’ve got questions about California’s minimum wage increases and their impacts on your business, connect with an experienced lawyer for employers who has in-depth knowledge of these types of issues. Doing so can save you a lot of headaches as you navigate changing wage requirements.

If you’re navigating California’s wage increases and want to ensure compliance while optimizing your payroll strategy, contact Pearlman, Brown & Wax, LLP for expert legal guidance tailored to employers.