Employer Alert: Minimum Wage Increase effective January 1, 2026
In a letter to California legislators, the Director of the Department of Finance provided his annual minimum wage calculation, concluding that based on the required metrics, the state must increase the minimum wage again starting January 1, 2026.
Labor Code section 1182.12(c) requires the Director of Finance to annually calculate an adjusted minimum wage on or before August 1 of each year following the implementation of the minimum wage to $15.00 per hour for all employers, which occurred on January 1, 2023. The Director’s calculation of the adjusted minimum wage must be the lesser of 3.5 percent or the rate of change, as specified, for the United States Bureau of Labor Statistics non-seasonally adjusted United States Consumer Price Index for Urban Wage Earners and Clerical Workers (U.S. CPI-W). The adjusted minimum wage increase takes effect on January 1 following the calculation. Pursuant to section 1182.12, the minimum wage was increased to $16.50 per hour on January 1, 2025, for all employers.
This year, the Department of Finance calculates the average U.S. CPI-W for the 12-month period from July 1, 2024 to June 30, 2025 increased by 2.49 percent compared to the 12-month period from July 1, 2023 to June 30, 2024. As a result, pursuant to section 1182.12(c), the minimum wage shall increase by 2.49 percent to $16.90 per hour and shall be implemented for all employers on January 1, 2026. This is an increase of $0.40 from the previous year.
Employers should be clear that this rate increase applies to all workplaces no matter the size. In addition, employers should be aware of how this change affects exempt employees’ salaries, overtime payments, sick leave accruals, and wage statement compliance, among other items.
In addition, please note that some cities and counties have higher minimum wages than the state’s rate. Here is a list of City and County minimum wages in California maintained by UC Berkeley. When there are conflicting requirements in the laws, the employer must follow the stricter standard; that is, the one that is the most beneficial to the employee.
