$16.90 an hour. That’s California’s statewide minimum wage starting January 1, 2026, and it moves more than the lowest hourly rate on your payroll. Because the salary test for exempt employees is pegged to the minimum wage, salaried managers and administrators now needs to earn at least $70,304 a year to stay exempt. A company that misses either number faces back wages, liquidated damages, and penalties, and the exempt mistake is the more expensive one.
Where does the $16.90 figure come from?
It comes from an automatic adjustment written into the statute. Labor Code section 1182.12(c)(1) directs the Director of Finance to calculate an adjusted minimum wage each year that increases it “by the lesser of 3.5 percent and the rate of change” in the federal CPI-W, and provides that “Each adjusted minimum wage increase calculated under this subdivision shall take effect on the following January 1.”
The Labor Commissioner’s minimum wage FAQ states the result: “Effective January 1, 2026, the minimum wage is $16.90 per hour for all employers.” The same page’s table shows the 2025 rate of $16.50, so the increase is 40 cents an hour. The old split between employers with 25 or fewer employees and larger employers is gone, and one rate applies to everyone.
The statewide rate is a floor, not the answer for every worker. Many cities and counties set higher local minimums, and fast food and health care workers have their own industry rates. A company should pay the highest rate that applies at each worksite.
Why does the minimum wage change the exempt salary test?
The Labor Code ties the two together. Under Labor Code section 515(a), an executive, administrative, or professional employee can be exempt from overtime only if the employee “earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” Subdivision (c) defines full-time employment as “employment in which an employee is employed for 40 hours per week.”
The math is $16.90 times two, times 40 hours, times 52 weeks. That’s $70,304 a year, or about $5,858.67 a month. In 2025 the same calculation at $16.50 produced $68,640.
“Exempt” means the overtime and meal and rest premium rules don’t apply to the employee. It’s a status the employer has to earn on two tests at once: the duties test and the salary test. A salaried assistant manager paid $69,000 in 2026 may do exactly the work that qualifies, and still be non-exempt because the salary is short. The duties side is covered in more detail in the firm’s post on executive and administrative exemption misclassification.
What happens to an employer that misses the January 1 change?
Exposure builds in layers, and each one has its own statute.
| Mistake | Statute | What the employee or agency can recover |
|---|---|---|
| Hourly pay below $16.90 | Lab. Code § 1194.2(a) | The unpaid wages, plus liquidated damages “in an amount equal to the wages unlawfully unpaid and interest thereon” |
| Same, cited by the Labor Commissioner | Lab. Code § 1197.1(a) | For an initial intentional violation, $100 per underpaid employee per pay period, and $250 for each subsequent violation, plus wages and liquidated damages |
| Salaried “exempt” employee paid under $70,304 | Lab. Code § 515(a) | The exemption fails, so unpaid overtime and missed meal and rest premiums become the claim |
| Former employees on either list | Lab. Code § 203 | Waiting time penalties on the unpaid wages, under the conditions the statute sets |
In litigation, the first thing to know is that liquidated damages on minimum wage aren’t automatic. Section 1194.2(b) lets the court or the Labor Commissioner reduce or refuse them if the employer shows “the act or omission giving rise to the action was in good faith and that the employer had reasonable grounds for believing” it wasn’t a violation. A payroll change made late because of a vendor error is a better story than one that never happened. Second, liquidated damages don’t attach to overtime: subdivision (a) says nothing in it authorizes “the recovery of liquidated damages for failure to pay overtime compensation.” That doesn’t make the exempt mistake cheaper, because the overtime claim reaches back across every long week the employee worked.
Who gets caught by the salary change?
The employees closest to the line. A company that set salaries at the 2025 threshold without a cushion, or that hired in late 2025 at $68,640 or $69,000, has employees who fell below the floor on January 1. Part-time exempt employees are another trap. The statute measures the salary against full-time employment, so a prorated salary below $70,304 for a 30-hour exempt role is a risky position to defend.
Employers sometimes assume the federal salary test protects them. It doesn’t. California’s test is higher than the federal one and controls for California employees. Some exemptions use different figures. The computer software exemption has its own annually adjusted rate, explained in the firm’s post on the Labor Code 515.5 software exemption.
There’s no grace period in either statute. The duty to pay the new rate starts with the first pay period that includes January 1.
What should a company do now?
Payroll fixes made before a claim arrives look very different from fixes made after. If a complaint, a Labor Commissioner claim, or a PAGA notice has already come in, the order of the steps changes.
- Pull every hourly rate and every exempt salary in the payroll system and compare them to $16.90 and $70,304, and to any higher local or industry rate.
- Correct the rates going forward, and calculate and pay any shortfall for pay periods that already closed, with a wage statement that shows the adjustment.
- If a claim has arrived, preserve the payroll and timekeeping data, the offer letters, and the salary history, and calendar the deadline on the notice or complaint.
- Check the arbitration agreements and the EPLI policy for notice requirements, and don’t change the claimant’s schedule or duties in a way that could look like retaliation.
- Talk to a lawyer before paying back wages to a claimant directly, since a payment made without a release or a clear record can complicate the defense.
Companies that find a misclassified group after January 1 usually have choices about how to fix it and how to document the fix. The firm’s page on California wage and hour defense describes how those claims are defended.
If an employee says the new rate wasn’t paid
If your company has received a wage claim over the 2026 minimum wage or a salaried employee’s exempt status, the payroll records from the first weeks of January usually tell you how big the problem is. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving minimum wage and exempt salary shortfalls. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.
Sources
The statutes are Labor Code sections 515, 1182.12, 1194.2, and 1197.1. The 2026 rate is from the Labor Commissioner’s minimum wage FAQ.
This post is general information about California and federal employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.