California's Minimum Wage to Increase to $16.50 in 2025

California is set to raise its minimum wage to $16.50 per hour starting January 1, 2025. This adjustment marks a significant development for businesses, HR professionals, and residents across the state. Here's what you need to know about how this new wage was calculated, what steps employers should take, and the broader implications for the rest of the country.

How Was the New Minimum Wage Set?

Since the state minimum wage reached $15.50 for all employers on January 1, 2023, California's labor code mandates that the Director of Finance announce an adjusted state-level minimum wage by August 1 each year, which then takes effect the following January.

Right on schedule, Director of Finance Joe Stephenshaw published the annual Minimum Wage Increase letter on August 1. This year, the Department of Finance calculated that the average U.S. Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the 12-month period from July 1, 2023, to June 30, 2024, increased by 3.18% compared to the 12-month period from July 1, 2022, to June 30, 2023. The calculated adjustment was confirmed to be less than the 3.5% rate of change cap and was rounded to the nearest 10 cents, per the minimum wage law.

Based on these adjustments for inflation, California’s Department of Finance certified that the state-level minimum wage will increase to $16.50 per hour on January 1, 2025.

What Employers Should Do

Employers should begin preparing now to ensure compliance with the new minimum wage requirements. Here are some steps to consider:

• Review Payroll Budgets: Adjust payroll budgets to accommodate the increased wage.
• Update Payroll Systems: Ensure your payroll systems are updated to reflect the new minimum wage starting January 1, 2025.
• Communicate with Employees: Inform your workforce about the upcoming change and how it will affect their pay.
• Evaluate Pricing Strategies: If necessary, adjust pricing strategies to account for increased labor costs.
• Consider Overall Compensation Packages: Review and possibly revise overall compensation packages to maintain competitiveness.

Impact on Employers with Remote Employees in California

For employers headquartered outside of California but with remote employees working within the state, the new minimum wage law still applies. It’s crucial for these employers to:

• Ensure Compliance: Update payroll practices to comply with California's minimum wage requirements for remote employees.
• Monitor State-Specific Laws: Stay informed about any additional state-specific employment laws that may impact remote workers.

What This Means for the Future of the Rest of the Country

California often sets the pace for labor laws and regulations in the United States. This minimum wage increase could potentially influence other states to reevaluate their own wage policies. Businesses across the country should keep an eye on these developments as they could signal broader changes in the national labor landscape.

Other States' 2024 Minimum Wage Rates

Alaska

• Statewide – $11.73

Arizona

• Standard – $14.35
• Tipped Employees – $11.35

California

• Statewide – $16.00

Colorado

• Standard – $14.42
• Tipped Employees – $11.40

Connecticut

• Standard – $15.69
• Bartenders – $8.23
• Waitstaff – $6.38

Delaware

• Standard – $13.25
• Tipped Employees – $2.23

Hawaii

• Standard – $14.00

Illinois

• Standard – $14.00
• Tipped Employees – $8.40

Maine

• Standard – $14.15
• Tipped Employees – $7.08

Maryland

• Standard – $15.00
• Tipped Employees – $3.63

Michigan

• Standard – $10.33
• Tipped Employees – $3.93

Minnesota

• Large Employers – $10.85
• Small Employers – $8.85

Missouri

• Standard – $12.30
• Tipped Employees – $6.15

Montana

• Statewide – $10.30

Nebraska

• Standard – $12.00
• Tipped Employees – $2.13

Nevada

• Statewide – $12.00

New Jersey

• Large Employers – $15.13
• Tipped Employees – $5.26

New York

• New York City – $16.00
• Nassau, Suffolk, and Westchester Counties – $16.00
• Rest of New York State – $15.00
• Tipped Service Employees in NYC – $13.35 cash wage
• Tipped Food Service Workers in NYC – $10.65 cash wage

Oregon

• Portland Metro Area – $15.95
• Standard Counties – $14.70
• Non-Urban Counties – $13.70

Washington D.C.

• Standard – $17.50
• Tipped Employees – $10.00