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January 1, 2026 · Benjamin J. Treger
Here’s Why It Matters Even If You Don’t Pay It.
Effective January 1, 2026, California’s minimum wage increased from $16.50 to $16.90 per hour. If none of your employees earn minimum wage, you might be tempted to move on to the next item in your inbox. Don’t.
California’s minimum wage is not just a pay floor. It is the reference point, the load-bearing variable, for a wide range of employment rules, thresholds, and payment obligations that reach well beyond the workers who actually earn it. When the minimum wage moves, these figures move with it, often in ways employers don’t anticipate until it’s too late.
This post walks through the most common rules that are calculated by reference to the minimum wage, explains how each one works, and provides the updated 2026 figures you need.
This is the big one. To classify an employee as exempt from overtime under the executive, administrative, or professional exemptions, California requires that the employee earn a monthly salary of no less than two times the state minimum wage for full-time employment. (Lab. Code § 515(a).)
At $16.90 per hour, the math is:
That is an increase of $1,664 per exempt employee over the 2025 threshold of $68,640. For an employer with 50 exempt employees, this minimum wage increase just added over $83,000 to the annual salary floor, regardless of whether anyone on the payroll actually earns minimum wage.
Bottom line: Any exempt employee earning less than $70,304 as of January 1, 2026 must either receive a raise or be reclassified as non-exempt.
Labor Code § 204.1 provides an overtime exemption for certain employees in the mercantile industry (and some others) who earn more than half their compensation in commissions. To qualify, the employee’s regular rate of pay must exceed 1.5 times the minimum wage, that is, more than $25.35 per hour for 2026. If a commissioned employee’s earnings dip below this threshold in any pay period, the exemption does not apply for that period, and overtime is owed.
Under Section 9 of most IWC Wage Orders, an employer may require employees to provide and maintain their own hand tools and equipment customarily required by the trade, but only if the employee earns at least 2 times the minimum wage. For 2026, that threshold is $33.80 per hour. Employees earning less than this amount must be furnished with all required tools at the employer’s expense. A minimum wage increase can push this threshold above an employee’s pay rate, shifting the cost of tools from employee to employer.
Under the IWC Wage Orders, when an employee works a split shift (a schedule interrupted by a non-paid, non-working period longer than a bona fide meal break), the employer owes a premium of one hour at the state minimum wage. Critically, this premium is measured at the minimum wage, not the employee’s regular rate. For 2026, that means $16.90 per split-shift day. Employers who rely on split schedules (common in hospitality, food service, and retail) will see this cost rise with every minimum wage increase.
If an employee reports for a scheduled shift but is sent home early (or not put to work at all), the employer must pay for at least half the scheduled shift (with a minimum of 2 hours and a maximum of 4 hours) at the employee’s regular rate. However, the absolute floor for this payment is 2 hours at the state minimum wage: $33.80 for 2026. Even if the employee’s regular rate would produce a lower figure (uncommon, but possible with certain averaging), the minimum-wage floor controls.
When an employer provides meals or lodging to employees and wishes to credit those benefits against the minimum wage obligation, the maximum credit amounts are set by the IWC and adjust proportionally with the minimum wage. For 2026, the maximum meal credits are: breakfast $6.10, lunch $8.42, and dinner $11.28. Lodging credits also increased. A room occupied alone may be credited at up to $79.46 per week. Employers relying on these credits must update their calculations with each minimum wage change.
California requires employers to display current minimum wage postings in the workplace, regardless of whether any employee actually earns minimum wage. With the rate now at $16.90, employers should verify that outdated postings reflecting the prior $16.50 rate have been removed and replaced with the current version.
Many California cities and counties maintain their own minimum wage rates that exceed the statewide floor. For example, as of 2026, Los Angeles requires $17.28 per hour, San Francisco requires $18.67, and West Hollywood requires $19.08. Employees who perform work within these jurisdictions must be paid at the higher local rate, not the state rate. This applies even if the employer’s principal office is located elsewhere; what matters is where the work is performed. Employers with employees working across multiple locations should confirm they are applying the correct rate for each jurisdiction.
California’s IWC Wage Orders generally impose daily overtime requirements, meaning overtime is owed after 8 hours in a single workday, not just after 40 hours in a week. However, the Wage Orders provide an exemption from these daily overtime rules for employees covered by a qualifying collective bargaining agreement (CBA). To qualify, the CBA must provide a regular hourly rate of at least 30 percent more than the state minimum wage. At $16.90, that threshold is $21.97 per hour. If a CBA’s hourly rate falls below this figure, the exemption is lost and the employer becomes obligated to pay daily overtime to those employees on the same basis as any non-union employer. Employers with union workforces should verify that their CBA rates still clear this threshold after each minimum wage increase.
Separate from the general state minimum wage, California has established higher minimum wages for specific industries. Fast-food restaurant employees must be paid at least $20.00 per hour under AB 1228, a rate set by the Fast Food Council. Healthcare workers are subject to graduated minimums under SB 525 that vary by facility type: as of 2026, large health systems and dialysis clinics must pay at least $23.00 per hour, with other categories of healthcare facilities phasing in at different rates over the coming years.
These industry rates apply to the workers in those sectors, but an important distinction often gets missed: the derivative thresholds discussed throughout this post (the exempt salary floor, the tools and equipment threshold, the CBA exemption rate, and so on) are still calculated from the general state minimum wage of $16.90, not from the industry-specific rate. A fast-food employer paying $20.00 per hour still uses $16.90 as the basis for determining whether an employee qualifies as exempt or whether a CBA clears the overtime exemption threshold. Employers in these industries need to track both figures and understand which one governs which obligation.
The ten items above are the most commonly encountered, but they are not an exhaustive list. The minimum wage also serves as the reference point for piece-rate rest and recovery period pay (Lab. Code § 226.2), learner rates for new employees (IWC Wage Orders), industrial homework pay rates (Lab. Code § 2658), sheepherder wage minimums (Wage Order 14), certain camp counselor salary provisions, and sub-minimum wage licenses for disabled workers (Lab. Code § 1191). The chart below includes these additional items for reference.
| Rule | Formula | 2026 Amount | Authority |
|---|---|---|---|
| Exempt Salary Threshold | MW × 2 × 40 hrs × 52 wks | $70,304/yr | Lab. Code § 515(a) |
| Commissioned Employee Exemption | MW × 1.5 | $25.35/hr | Lab. Code § 204.1 |
| Tools & Equipment Threshold | MW × 2 | $33.80/hr | IWC Wage Orders § 9 |
| Split-Shift Premium | 1 hour at MW | $16.90/day | IWC Wage Orders |
| Reporting Time Pay (floor) | 2 hours at MW | $33.80 | IWC Wage Orders |
| Meal Credits (B / L / D) | Indexed to MW | $6.10 / $8.42 / $11.28 | IWC Wage Orders § 10 |
| Piece-Rate Rest Period Pay | Higher of MW or avg. piece rate | $16.90/hr min. | Lab. Code § 226.2 |
| Learner Rate | MW × 0.85 | $14.35/hr | IWC Wage Orders |
| Industrial Homework Pay | MW × 1.5 | $25.35/hr | Lab. Code § 2658 |
| Sheepherder Monthly Salary | Multiple of MW | Varies | Wage Order 14 |
| Sub-Minimum Wage Licenses | Percentage of MW | Varies | Lab. Code § 1191 |
| CBA Overtime Exemption | MW × 1.3 | $21.97/hr | IWC Wage Orders |
| Local MW Ordinances | Highest applicable rate | Varies by city/county | Local ordinances |
| Fast-Food Workers | Set by Fast Food Council | $20.00/hr | AB 1228 |
| Healthcare Workers (large systems/dialysis) | Graduated by facility type | $23.00/hr | SB 525 |
1. Audit exempt salaries. Confirm that every employee classified as exempt earns at least $70,304 annually (or $5,858.67 monthly). Employees who fall short must receive a raise or be reclassified, and reclassification means implementing timekeeping, meal and rest break compliance, and overtime tracking.
2. Review commission plans. If you rely on the § 204.1 commissioned-employee exemption, verify that all affected employees consistently earn above $25.35 per hour. Run the numbers for your lowest-earning commissioned employees across recent pay periods.
3. Update split-shift and reporting-time calculations. These are payroll-system settings that are easy to overlook. Make sure your payroll provider has updated the minimum wage figure used in these calculations.
4. Check your tools-and-equipment practices. If you require employees to provide their own tools, those employees must now earn at least $33.80 per hour. Any employee below that threshold must be furnished with all required tools at the employer’s expense.
5. Recalculate meal and lodging credits. If you provide meals or lodging and credit their value against wages, ensure you are using the 2026 amounts.
6. Don’t forget local ordinances. Dozens of California cities and counties have their own minimum wage rates, many of which are higher than the state figure. The state minimum is always the floor, but local rules may set a higher ceiling, and some of the derivative calculations above may be affected. Check the rates for every jurisdiction in which your employees work.
This post is for informational purposes only and does not constitute legal advice. Employers should consult with qualified employment counsel regarding their specific compliance obligations.