California employers have another wage increase to prepare for in 2027.

Effective January 1, 2027, California’s statewide minimum wage will increase from $16.90 to $17.40 per hour. The new rate generally applies to employers statewide regardless of employer size.

While a 50-cent hourly increase may seem straightforward, the change can have broader implications for California employers—including the salary threshold for certain exempt employees.

California Minimum Wage Increases to $17.40

Beginning January 1, 2027, most California employees must be paid at least $17.40 per hour.

California’s statewide minimum wage is adjusted annually based on inflation. However, employers should remember that the statewide rate may not be the rate that ultimately applies to every employee.

Some California cities and counties have their own minimum wage requirements that are higher than the state minimum. Certain industries, including covered fast-food and health care employers, may also be subject to separate minimum wage requirements.

Employers should confirm the applicable rate based on both the employee’s work location and industry.

The Exempt Salary Threshold Is Increasing Too

The minimum wage increase also affects the salary threshold for many employees classified as exempt from California overtime requirements.

Beginning January 1, 2027, an employee must earn an annual salary of at least $72,384 to meet the minimum salary requirement for certain exemptions.

The calculation is based on twice the state minimum wage for full-time employment:

$17.40 × 2 × 40 hours per week × 52 weeks = $72,384 per year

Employers should keep in mind that salary is only one part of determining whether an employee qualifies as exempt. Employees must also satisfy the applicable duties and other requirements for the specific exemption.

Simply increasing an employee’s salary to $72,384 does not automatically make the employee exempt.

Why Employers Should Review Exempt Positions Now

Employers don’t need to wait until December to determine which employees may be affected.

Review employees currently classified as exempt—particularly those whose salaries are near the new threshold.

For an affected employee, an employer may need to evaluate whether to increase the employee’s salary to satisfy the new threshold or reclassify the position as nonexempt.

If reclassification is being considered, employers should also think through related issues such as timekeeping, overtime, meal and rest period requirements, and how the change will be communicated to the employee.

Don’t Forget Local and Industry-Specific Minimum Wages

California’s $17.40 rate establishes the statewide minimum, but it isn’t necessarily the final number every employer should use.

Some cities and counties impose higher local minimum wages. California also has separate requirements affecting certain fast-food and health care workers.

Employers with employees working in multiple California locations should review the requirements that apply in each location rather than assuming the statewide rate applies to everyone.

What Should California Employers Do Before January 1?

Now is a good time for employers to:

• Review hourly pay rates for employees currently earning at or near minimum wage.
• Identify exempt employees whose salaries fall below the new $72,384 threshold.
• Review exempt classifications to confirm employees meet both salary and duties requirements.
• Determine whether salary adjustments or reclassifications will be necessary.
• Review applicable city, county, and industry-specific minimum wage requirements.
• Prepare payroll and timekeeping systems for January 1 changes.
• Review required workplace postings and replace them when updated notices become available.
• Communicate compensation or classification changes to affected employees before they take effect.

Start Preparing Now

January 1 will arrive quickly, and wage changes can affect more than payroll.

Reviewing compensation and classifications before year-end gives employers time to identify potential issues, budget for necessary adjustments, communicate changes appropriately, and begin 2027 in compliance.

Need help preparing for California’s 2027 wage changes or reviewing employee classifications? Consult HR Services can help you evaluate your current practices and prepare for the new requirements.