California continues to lead the nation in minimum wage policy with planned increases for 2025 and 2026. Workers and businesses alike need to understand when the new wage rates take effect, how local jurisdictions differ, and what salary threshold changes will affect exempt employees. This article provides a detailed breakdown of the upcoming increases and practical guidance to stay compliant.
“The shift to $16.50 in 2025 reflects California’s commitment to keeping wages aligned with cost-of-living pressures,” says Sarah Lin, Senior Analyst, California Labor Research Center.
“Businesses must now audit exempt classifications and local wage ordinances to avoid costly violations,” adds Mark Alvarez, Employment Law Partner, West Coast Law LLP.
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Overview of California Minimum Wage Increase 2025-2026
| Effective Date | Statewide Minimum Wage | Applicable Employers |
|---|---|---|
| January 1, 2025 | $16.50 per hour | All California employers (26+ employees according to state law) (dir.ca.gov) |
| January 1, 2026 | $16.90 per hour (projected) | All California employers (californiaworkplacelawblog.com) |
In addition to these statewide thresholds, many cities and counties in California enforce higher local minimum wage rates which override the state rate.
Key Features & What’s Changing
1. Statewide Minimum Wage Increase
Starting January 1, 2025, the base minimum wage in California will increase from $16.00 (or $16.00/’24) to $16.50 per hour for all employers. A further yearly adjustment is scheduled for January 1, 2026, rising to $16.90 per hour, tied to cost-of-living metrics and capped increases.
2. Impact on Exempt Salaried Employees
Under California law, to qualify for the “white-collar” overtime exemption, an employee’s salary must be at least twice the state minimum wage for full-time work (40 hours/week × 52 weeks).
- For 2025: With $16.50/hr × 2 = $68,640 per year minimum salary.
- For 2026: With $16.90/hr × 2 = $70,304 per year minimum salary.
Employers must ensure exempt employees meet this threshold or risk reclassification and overtime liability.
3. Local Ordinances & Higher Minimum Wages
While the statewide rate sets a floor, many California cities/counties have higher minimum wage ordinances which must be followed when employees work in those locations. For example, effective July 1, 2025:
- Berkeley: $19.18/hr
- Emeryville: $19.90/hr
- Los Angeles (City): $17.87/hr
Employers must pay the highest applicable rate (state vs local) for each employee.
4. Industry-Specific Wage Rates
Certain sectors, such as fast-food and healthcare, have separate wage schedules that can exceed the general minimum wage. These must be monitored separately.
Why It Matters?
- For Workers: The increase helps earnings stay closer to California’s high cost of living and inflation pressures.
- For Employers: Non-compliance can result in claims for unpaid wages, penalties, and damage to reputation.
- Legal Compliance: Salary thresholds for exempt employees change, meaning many roles previously classified as exempt may need to be re-evaluated.
- Local Jurisdictions: Businesses operating in multiple cities must track multiple wage rates and ensure they pay the highest applicable rate.
Recent Updates
- Prop 32 Rejection: A ballot measure that would have bumped the state minimum wage to $18 by 2025 was rejected in November 2024.
- Letter to Legislature: The California Department of Finance sent a letter setting the 2026 increase to $16.90/hr, referencing CPI-W and a capped increase of 3.5%.
- Local Changes Effective July 1, 2025: Many local jurisdictions raised their rates mid-year, including hospitality and hotel workers.
Bottom Line
Starting January 1, 2025, California’s statewide minimum wage climbs to $16.50/hr, and a further adjustment to $16.90/hr is set for January 1, 2026. Employers must update payroll systems, review exempt employee classifications, and account for higher local wage ordinances. For workers, these increases offer real-world relief in a high-cost state—but the highest applicable rate always applies.
FAQs
When does the new statewide minimum wage take effect?
January 1, 2025, when the rate rises to $16.50 per hour.
Do my employees need to earn more to qualify as exempt?
Yes. For 2025 the exempt salary threshold is $68,640/year; for 2026 it rises to $70,304/year.
What if my employees work remotely from a city with its own wage ordinance?
You must pay the higher local minimum wage applicable to the physical work location or where the work is performed.
Does this affect tipped employees?
California does not allow a lower tipped minimum than the general minimum for most occupations — tipped employees must receive at least the general minimum wage.
What will the minimum wage be in 2026?
The state minimum wage is projected at $16.90 per hour for January 1, 2026. Local rates may remain higher.