California Minimum Wage Update for 2026: What Employers Need to Know Now
California Minimum Wage Increases to $16.90 on January 1, 2026
California’s minimum wage will increase from $16.50 to $16.90 per hour effective January 1, 2026, as announced by the California Department of Finance. This 2.49% increase is tied to inflation adjustments and applies to all employers regardless of size.
This update follows California voters narrowly rejecting Proposition 32 in the 2024 election, which would have raised the minimum wage to $18 per hour by 2026.
Statewide vs. Local Minimum Wage Rates
While $16.90 will be the statewide floor, many California cities and counties have their own higher local minimum wage rates that employers must follow if they operate in those jurisdictions.
San Diego: Currently $17.25/hour (as of January 1, 2025) and will likely increase again in 2026 based on the city’s own annual inflation adjustments.
Other cities like San Francisco and Los Angeles often have significantly higher minimums than the state rate.
Employers must always pay the higher of the applicable federal, state, or local minimum wage.
What This Means for Employers: Key Considerations
Hourly Minimum Wage Applies to All Employers
Whether you’re a small business or a large corporation, the new $16.90 minimum wage is mandatory statewide, and local rates may be higher.Salaried Exempt Employee Threshold Increases
The minimum annual salary for exempt employees will rise to $70,304 per year (or $5,858.67 per month). Employers must review exempt employee classifications to ensure compliance.Classification Review
Audit your exempt vs. non-exempt classifications. Any exempt employee earning less than the new threshold must be reclassified and paid overtime where applicable.Budget and Payroll Adjustments
Update payroll systems and budget forecasts for both statewide and local increases.Communication with Employees
Especially in multi-location businesses, make sure employees understand which rate applies to them.
Action Steps to Take Today
Conduct a payroll and classification audit: Ensure all exempt employees meet the higher of state or local minimum salary thresholds.
Check local wage laws: Confirm your city or county’s 2026 minimum wage rates.
Update payroll systems: Schedule changes in advance for both hourly and salaried employees.
Revise budgets: Factor in the higher costs for both state and local rates.
Train HR and managers: Make sure they understand the different rates for different jurisdictions.
Communicate proactively: Especially for employees in locations with higher minimum wages.
Why Early Preparation Matters
Waiting until the last minute can lead to payroll errors, compliance issues, and employee dissatisfaction. Preparing now ensures a smooth transition into 2026 and reduces risk for your business.
