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Guidance Issued on New Minimum Wage Law

2017: New Laws Affecting California Employers

From HRCalifornia, presented by California Chamber of Commerce:

Effective January 1, 2017, the California minimum wage rate depends on your company size:

  • For employers with 26 employees or more the minimum wage is $10.50 an hour.
  • For employers with 25 employees or less the minimum wage is $10.00 an hour.

This is a result of SB 3, which Governor Brown signed into law last year.

The minimum wage will continue to increase over the next several years until it reaches $15 per hour. Larger employers will reach this rate in 2022 and smaller employers will reach this rate in 2023. After that, future increases are tied to the consumer price index (CPI). For a chart of future increases, see California Minimum Wage and California Minimum Salary Thresholds Through 2023.

This new law leaves employers with some questions about how, exactly, the phase-in of minimum wage rates will occur and how to determine which rate applies to workplaces.

Recently, the Labor Commissioner’s Office issued a series of FAQs designed to answer some employer questions. However, the guidance is not always definitive. It’s important to remember that the guidance is just that — “guidance.” It is not binding on the courts but does indicate how the Labor Commissioner might enforce the law.

Visit this DIR webpage to review the full set of FAQs. Below are some of the more important questions answered by the Labor Commissioner.

Who do you count as an employee to determine which minimum wage rate applies?

All individuals working for compensation will be counted, regardless of the number of hours worked or the geographic location. This includes part-time workers, new hires and exempt employees. Bona fide independent contractors are not counted.

What time period should you use when counting employees?

The law does not specifically state how to count employees, and this can be confusing if a workforce fluctuates (e.g., you hire seasonal workers). Do you look at the prior year, or the month, or a pay period? The FAQs state that a court, or the Labor Commissioner, will likely look at the facts during the pay period in which an alleged underpayment occurred.

The Labor Commissioner recommends that if an employer reaches the threshold of 26 employees at any point in a pay period, the employer should compensate workers at the higher minimum wage rate for the duration of the entire period.

The Labor Commissioner states that employers must “make a reasonable, good faith determination of the size of their workforce.” Remember that when labor laws are ambiguous, they are generally interpreted in favor of employees.

Which rate should you use if the number of employees changes during the year?

Per the above discussion, if you increase to 26 or more employees at any time during a pay period, you should apply the large-employer rate to all employees for that pay period.

If you drop below 26 employees and decide to lower the wage, the Labor Commissioner states that you must give notice in advance and must provide the information on the pay stub. The Labor Commissioner specifically refers to the Wage and Employment Notice required under Labor Code 2810.5. The Labor Commissioner indicates that advance notice, along with good recordkeeping, will also lessen confusion and potential liability.

The Labor Commissioner also states:

Should an employer drop below the 26 employee threshold in the middle of a pay period and determine they wish to pay the lower minimum wage rate it would not be appropriate to reduce their employee’s rate of pay until the following period, and only after the required notice has been provided to their workforce.

What about workers provided by a staffing agency?

The FAQs state that if an employer obtains workers through a staffing agency, the employer should count these workers, along with other direct hire workers, as employees for purposes of determining the applicable minimum wage rates.

This is an important point if you use workers provided by a staffing or temp agency.

What about franchises or other joint employment scenarios?

The Labor Commissioner points out that all individuals under an employer’s control should be counted as employees for purposes of determining the applicable minimum wage rate.

The FAQs state that employers in these types of scenarios should analyze the nature of their employment and franchise agreements to determine if they could be found to be an employer under the Labor Code: “[A] person or entity who exercises control over an individual’s wages, hours, or working conditions could be found to be the employer of that individual.”

If so, all individuals under the employer’s control need to be aggregated and counted as employees for purposes of determining the correct minimum wage rate.

This, however, is not always an easy, “bright line” analysis, and the trend has been toward finding more and more situations of joint control

What do I need to know about local ordinances?

The FAQs highlight the fact that many local jurisdictions have their own minimum wage rates. See the Local Minimum Wage and Paid Sick Leave Ordinances chart.

Some of these local ordinances, such as the minimum wage ordinance for the city of Los Angeles, also use a tiered approach, with one rate for larger employers and one rate for smaller employers.

However, these local ordinances may have different requirements for determining employer size. For example, the state test counts employees regardless of their location, but Los Angeles city counts employees who work in Los Angeles at least two hours per week.

Also, the dates of the minimum wage increase vary depending on the locality, with many increases occurring in July and one (Berkeley) in October.

Best Practices

  • Consult legal counsel if you have any unanswered questions regarding the applicable minimum wage rate for your workforce or issues regarding paying employees.
  • If you are covered by a local ordinance with a higher minimum wage rate than the state rate, pay close attention to the coverage requirements. These often are spelled out in the ordinance itself or in FAQs issued by the city or county.
  • Pay attention to other pay practices that are affected by the statewide minimum wage increase.
  • Post the required state Minimum Wage Order (MW-2017) and any applicable local minimum wage poster. CalChamber’s 2017 all-in-one poster includes mandatory updates to the California Minimum Wage Order for January 1, 2017, as well as other required updates. CalChamber also sells labor law posters covering various local ordinances.

Employment posters available through the Chamber! Click below.

2017 Employment Posters – Available at the Chamber