California’s minimum wage has increased to $16.50 per hour for all employers effective January 1, 2025, up from $16.00 in 2024. This change reflects the state’s ongoing efforts to adjust minimum wage rates in response to inflation, as required under California Labor Code section 1182.12. This inflation-based adjustment is part of a broader strategy to ensure that wages keep pace with the cost of living and to protect low-wage workers from economic hardship.
Since January 1, 2023, when the minimum wage for all employers reached $15.00 per hour, the Director of Finance has been tasked with evaluating whether inflation warrants an adjustment. By August 1 each year, the Director calculates the adjustment based on the U.S. Consumer Price Index (CPI) using the lesser of a 3.5 percent increase or the actual rate of inflation. For the period between July 1, 2023, and June 30, 2024, the Department of Finance determined a CPI increase of 3.18 percent. As a result, the minimum wage will rise by 3.18 percent to $16.50 per hour starting in 2025.
The increase in the minimum wage also affects the minimum salary requirements for full-time exempt employees in California. Under state law, exempt employees must earn at least twice the state minimum wage, in addition to meeting other duties related requirements. Accordingly, the minimum salary for an exempt employees went from $66,560 per year ($5,546.67 per month) in 2024 to now $68,640 per year ($5,720 per month) in 2025. Employers should note that this minimum salary requirement applies even to part-time exempt employees, such that the minimum salary requirement cannot be pro-rated for part-time employees.
In addition to the state minimum wage, several California cities and counties have enacted their own local minimum wage ordinances, which may set higher wage floors than that provided by the state law. Employers should verify whether they are located in an area with a local ordinance and ensure compliance with the applicable rates, including minimum rate increases. For example, these cities all have minimum wage rates that went up on January 1, 2025: Belmont, Burlingame, Cupertino, Daly City, East Palo Alto, El Cerrito, Foster City, Half Moon Bay, Hayward, Los Altos, Menlo Park, Mountain View, Novato, Oakland, Palo Alto, Petaluma, Redwood City, Richmond, San Carlos, San Diego (city), San Jose, San Mateo (city), San Mateo County, Santa Clara, Santa Rosa, Sonoma (city), South San Francisco, Sunnyvale, and West Hollywood. Some cities also increase the minimum wage on July 1, so staying informed about local ordinances is especially important for multi-site employers who may face varying wage obligations within the state.
In November 2024, California voters narrowly rejected Proposition 32, a ballot measure that would have raised the minimum wage to $18 per hour for large and medium-sized employers and $17 per hour for small employers with 25 or fewer employees. Despite its rejection, the measure highlighted the ongoing public debate over fair wages and cost-of-living concerns.
Nonprofit organizations and other employers should anticipate steady annual increases in labor costs due to the inflation-based adjustment formula outlined in the Labor Code. Strategic planning and budgeting should account for these changes. Furthermore, minimum wage remains a highly debated issue in California, and similar initiatives to Proposition 32 could reemerge in future elections.
By staying informed and proactive, employers can ensure compliance with both state and local wage laws while effectively managing the financial impacts of these adjustments.