California Minimum Wage Update for 2026

California employers need to prepare for a key payroll compliance change effective January 1, 2026: the statewide minimum wage is increasing again. These changes affect hourly pay, overtime exemption thresholds, and local wage requirements — all of which could impact your 2026 payroll if you haven’t already planned for them.

Statewide Minimum Wage Increase

Effective January 1, 2026, the California statewide minimum wage increases to $16.90 per hour for all employers, regardless of size. Employers must pay at least this rate — or a higher applicable local minimum wage — to non-exempt hourly workers.

This increase is part of California’s annual cost-of-living adjustments required under state law.

Exempt Salary Threshold Goes Up Too

Minimum wage increases also push up California’s exempt employee salary threshold. Under California law, exempt employees (executive, administrative, professional) must earn at least twice the state minimum wage based on a 40-hour week to qualify for exempt status.

For 2026:

Minimum annual salary for exempt employees = $70,304
(i.e., $16.90 × 2 × 40 × 52).

If a salaried employee earns less than this amount — even if their duties otherwise qualify — they must be treated as non-exempt with overtime eligibility.

Local Minimum Wages May Be Higher

Many California cities and counties set local minimum wages higher than the state rate. These local rates continue to adjust on January 1 and may apply depending on where the work is performed — even if an employee lives outside the jurisdiction.

Examples of city increases include:

Los Angeles: higher than the state minimum
West Hollywood: $20.25 per hour
San Jose: $18.45 per hour
…and others, with dozens of local rates varying by location.

Employers must always pay the highest applicable wage — whether state or local.

What Employers Should Do Before January 1

To ensure compliance and avoid retroactive pay or wage claims, California employers should:

1. Update payroll systems
Set the default hourly rate to at least $16.90 (or higher if local rates apply).

2. Review exempt employee pay
Confirm all exempt workers earn $70,304+ annually; otherwise, reclassify them as non-exempt.

3. Audit work locations
Check where employees perform work to determine the correct minimum wage — especially if they travel between jurisdictions.

4. Update employee notices and postings
State and local wage postings must reflect the new minimum wage rates.

Compliance Risks If You Don’t Prepare

Failing to adjust pay rates or exempt salary thresholds can result in:

Wage claims and back pay
Overtime exposure for misclassified employees
Penalties and interest
Increased audit risk from the California Department of Industrial Relations

Minimum wage and exempt salary compliance isn’t just about avoiding mistakes — it’s about protecting your business and your team as wage laws evolve.

Baron Payroll Can Help You Navigate These Changes

At Baron Payroll, we help California employers:

Implement accurate wage updates
Maintain compliant exempt classifications
Navigate local and industry-specific wage laws
Reduce errors before year-end payroll runs

California payroll compliance is complex, but planning ahead makes it manageable.

If you have questions about how these wage updates affect your payroll, reach out before your first January payroll run.

Need Help Updating Your Payroll for 2026?

Baron Payroll clients count on us to keep their business compliant — no guesswork, no stress, no last-minute scrambling. If you want help reviewing your pay rates, tipped-employee rules, or exempt thresholds, we’re here for you.

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