Ready to Review Next Year’s Budget? 2025 Minimum Wage Announced!

Ready to Review Next Year's Budget? 2025 Minimum Wage Announced!

We may still be in 2024, however, many businesses are now working on next year's budget, especially with the announcement of 2025 minimum wage and exempt salary increases.

In case you haven't heard, as of January 1, 2025, California's minimum wage will increase by 50 cents to $16.50/hour. Remember, minimum wages also impact exempt employee salary requirements. For exempt classification, in addition to the duties test (for administrative, professional, and executive exemptions), an employee must earn two times the State's minimum wage (multiplied by 2080 hours/year). That means the minimum exempt salary will be bumped up to $68,640 annually in 2025!

Why the Increase?

It may feel like these minimum wage increases have become inevitable each year. The culprit? Inflation. After the state minimum wage reached $15.00 an hour in 2023, the rate is adjusted annually for inflation based on the national consumer price index for urban wage earners and clerical workers (CPI-W). The highest raise allowed in any one year is 3.5 percent. This year, the CPI increased by 3.18%, which results in the 50 cent increase.

Note that if Prop 32 passes on the November 2024 ballot this year, the minimum wage will be further increased-to $18.00/hour in 2025 (for businesses with 26 or more employees), and to $17.00/hour in 2025 (for businesses with 25 or fewer employees).

Industry-Specific Wages

Certain businesses are subject to industry-specific minimum wage and salary requirements. Fast food workers at limited-service restaurants that are part of chains with over 60 locations nationally saw an increase to $20.00/hour as of April 1, 2024.

For healthcare workers, increases may go into effect as early as October 15, 2024; if not, the increase will happen on January 1, 2025, and will initially range from $18/hour to $23/hour, with set future increases thereafter. Whether the increase happens in October or January depends on the State's budget.

Hotel workers in various cities also have a different minimum wage rate than the rest of the State..

Local Minimum Wages

Many jurisdictions in California have enacted their own minimum wage ordinances requiring that employers pay higher minimum wages for work performed within their geographical boundaries. Remember to check local minimum wages if you have remote non-exempt workers, including those working from home or on a hybrid schedule, and/or when you send workers to various job sites in different cities or counties. Refer to CEA's Local Minimum Wage Fact Sheet on our HR Forms page.

Budgeting Tips

In budgeting for 2025, employers should calculate how increases will impact their bottom line. Some questions to consider include:

• Should we reclassify any employees from exempt to non-exempt based on the new minimum salary of $68,640 for 2025? It's okay to do this at any time throughout the year, but you will want to communicate with affected employees first to discuss wage and hour rules, clocking in and out, etc.
• Should we raise our prices on our products or services to account for the wage increases?
• Do we need to consider any furloughs or layoffs in 2025 to stay financially healthy?

At CEA, we are experienced in getting creative in finding HR solutions that are legal and work for your business. CEA members may call us on our HR support line for additional guidance, at 800.399.5331 or email us at [email protected].