2023 CA Minimum Hourly Wage Increase is 50% Higher than Expected

Ready for some not-so-good news?

The state minimum wage law passed several years ago with the intent to increase the hourly minimum wage for all employees in California to not less than $15.00 per hour by January 1, 2023, also included a Consumer Price Index (CPI) trigger that increases the minimum wage due to inflation beginning on January 1, 2024.

However, citing “poor economic conditions” in the state with inflation running at about 8.8% over the past 12 months, first announced in mid-May as highly likely, on July 27, California’s Director of the Department of Finance quietly and officially pulled the CPI-trigger and set the new minimum wage rate for all employees. Beginning January 1, 2023, the hourly minimum wage will be 50% higher than originally scheduled six years ago . . . an increase of $1.50 to $15.50 per hour.

Based on a 40-hour work week and 52 weeks, this represents an unanticipated annual increase of $1,040 for a full-time employee on top of the $2,080 employers were already expecting. And in some areas of the state, local minimum hourly wages are higher yet. For churches and other employers with “exempt” employees, this also has a substantial impact on the required minimum salary to remain exempt from overtime wages . . . instead of the scheduled increase from $58,240 on January 1, 2023, the new exempt employee minimum salary will escalate to $60,280 . . . an increase of 3.50%!

This, however, is just the tip of the personnel expense iceberg. Churches that are just beginning to work on their 2023 Annual Budgets need to factor in not only these wage increases, which affect the amounts paid to employees, but they need to be mindful of the added impact on the employer’s share of FICA – the contributions for Social Security and Medicare which are equal to the amounts deducted from employees’ pay.

I’ve always been a “numbers guy” and here’s what the math means for churches with employees other than the pastor in 2023 . . . For every hour of minimum wage, the employer’s contribution of 7.65% will equal $1.18575, which is $47.43 per 40-hour work week . . . or $2,467.92 per year for a non-exempt employee (it skyrockets to $4,611.42 for an exempt employee paid the minimum salary).

Total annual personnel expense for a 40-hour per week per employee will rise to $34,707.92 compared to the current annual minimum cost per employee of $31,347.68 . . . or a whopping 10.72% minimum increase per employee (11.10% for exempt employees). And, remember, this all starts on January 1, 2023.

None of this includes a single minute of overtime, which will have to be paid at the rate of $23.25 per hour, plus the employer’s share of FICA at $1.877625 . . . a payroll expense of $25.03 per hour. Church & Ministry Compliance Consulting is here to help your church remain compliant.

For more information or guidance 0n budgeting and payroll issues, give us a call at 909.618.4841 or send an email to max@churchandministrycompliance.org