California Minimum Wage Hike: What Employers Need to Know for 2025

California’s Minimum Wage Increase: Are You Ready for What’s Next?

You’re a small business owner juggling payroll, compliance updates, and your day-to-day operations when one day, a letter arrives — hidden among routine notices — and your heart sinks.

It’s a penalty notice for underpaid wages, along with late fees you didn’t even know were accruing.

For many California businesses, navigating wage increases and compliance rules feels like trying to hit a moving target. With the statewide minimum wage rising to $16.50 per hour in 2025, industry-specific pay hikes already in effect, and local ordinances piling on even higher rates, staying compliant has never been more complex.

Staying ahead of these changes requires more than a quick payroll update, so preparing now will help ensure your business avoids unnecessary stress and stays focused on growth.

Let’s break down what’s changing and what you need to do to stay compliant.

A Cheat Sheet for Employers on California’s 2025 Wage Rules

California’s minimum wage increase establishes a new baseline for non-exempt employees across all industries. This applies universally to businesses of every size, from small family-run operations to large corporations.

Who Needs to Comply?

This wage increase impacts nearly all non-exempt employees, including part-time, seasonal, and temporary workers. Whether you’re running a local coffee shop or managing a regional retail chain, all qualifying staff must be paid at least $16.50 per hour.

Why the Statewide Wage Applies to All Businesses

The statewide minimum wage serves as the foundation for businesses across California, but it’s not the only rule employers need to follow. Local ordinances in cities like Los Angeles and San Francisco often mandate even higher pay, requiring businesses to meet the highest applicable rate. Additionally, specific industries such as fast food and healthcare must comply with regulations that establish separate, often higher, minimum wage standards.

Key Compliance Tips for Non-Exempt Employees

• Review payroll systems: Confirm that all non-exempt employees meet or exceed the $16.50 minimum starting January 1.

• Check for local requirements: If you operate in a city with higher wage laws, adjust accordingly.

• Audit job classifications: Ensure employees are classified correctly as exempt or non-exempt to avoid compliance issues.

The statewide increase is just the starting point. Industry-specific hikes and local ordinances add to the complexity, so compliance requires thoughtful preparation.

Fast-food and Healthcare Workers Lead the Pay Hikes

In California, fast-food and healthcare workers are stepping into the spotlight with wage increases that go well beyond the statewide $16.50 baseline. Think of these industries as the headliners in the state’s ongoing wage reform tour—they’re setting the pace for significant changes in how businesses handle pay. These recent adjustments reflect California’s ongoing focus on raising standards in sectors with high-demand labor forces.

What’s Driving These Industry-Specific Increases?

A comprehensive study by the Workplace Justice Lab at Rutgers University estimated that, on average, California workers lost between $2.3 to $4.6 billion annually due to minimum wage violations from 2014 to 2023. Those affected lost about 20% of their total paycheck annually, equating to nearly $4,000 for full-time workers.

• Fast-Food Workers: A new industry council approved a $20 per hour wage, reflecting efforts to improve compensation and attract workers to the sector. This change acknowledges the challenges fast-food employers face in maintaining staffing levels.

• Healthcare Workers: With rates climbing to $23–$24 per hour, these increases address the growing demand for qualified healthcare professionals and the critical nature of their roles. 

Key Compliance Tips for Industry-Specific Increases

Employers in these sectors face unique challenges when it comes to compliance. Beyond adjusting wages, businesses may need to reevaluate their hiring strategies, budget allocations, and overall workforce planning. It’s also crucial to consider how these changes interact with the statewide wage increase and local ordinances.

To navigate these updates, employers should:

• Review labor budgets: Industry-specific hikes may have a significant impact on operational costs.

• Track compliance closely: Industry councils and regulatory updates may introduce additional rules beyond wage increases.

• Engage employees: Transparent communication about wage adjustments can help build morale and address concerns.

By staying informed and proactive, businesses in these industries can balance compliance with maintaining competitive operations.

Higher Wages in Cities With Local Ordinances

California’s statewide minimum wage is just the baseline. Cities like San Francisco and Los Angeles often set their own, higher minimum wages, and employers must meet the rate that applies locally.

For example:

• San Francisco: As of 2024, the minimum wage is $18.07 per hour and adjusts annually for inflation.

• Los Angeles: The minimum wage rose to $16.90 in 2024 and is expected to increase again in 2025.

Employers operating across multiple locations need to stay on top of local ordinances, as failure to comply with the highest applicable rate can lead to fines and penalties.

Key Compliance Tips for Local Ordinances

• Know your locations: Confirm local minimum wage rates for each area where your employees work.

• Keep records updated: Regularly audit your payroll systems to ensure compliance with local laws.

• Consult resources: Local government websites often provide up-to-date wage information.

Salary Thresholds for Exempt Employees

Exempt employees are facing a critical pay update in 2025. Starting January 1, their minimum salary must hit $68,640 annually to maintain exempt status. This change could leave businesses juggling salary adjustments, reclassifications, and compliance requirements—all while ensuring their teams remain aligned with California’s duties test, which evaluates their job responsibilities against specific criteria.

Non-compliance can lead to back pay obligations, penalties, and reclassification headaches. Employers operating in multiple jurisdictions or managing a diverse workforce must take extra care to align salaries with the new regulations.

Key Compliance Tips for Exempt Employee Updates

• Review salaries: Identify employees earning below $68,640 and adjust pay to maintain exempt status.

• Reassess roles: Confirm that employees meet California’s duties test for exempt employees. This ensures their roles align with their classification.

• Update payroll systems: Reflect the new salary threshold and prepare to track overtime for employees who no longer qualify as exempt.

Taking these steps early ensures compliance, avoids legal risks, and keeps operations running smoothly as the new rules take effect.

Staying Ahead of California’s 2025 Legal Changes

Did you know that California collected over $88 million in penalties through the Private Attorneys General Act (PAGA) in 2019? This staggering statistic highlights the state's active role in enforcing labor standards in 2025 and beyond.

The 2025 wage changes come with several additional legislative updates that employers should have on their radar to avoid becoming another statistic:

• Paid Family Leave Modifications: Paid Family Leave now includes siblings and grandparents, requiring policy updates. Employers must update policies to reflect these changes and support employee access to leave.

• Freelance Worker Protection Act: Starting 2025, businesses must provide written contracts for freelance work over $250 and adhere to stricter payment timelines to avoid penalties.

• Job Advertisement and Meeting Restrictions: New laws require salary ranges to be included in job postings and limit mandatory employee meetings about personal or political topics.

To stay compliant, employers should review their HR policies, ensure contracts and job postings meet the new standards, and consult reliable resources for ongoing updates.

Your Fractional HR Partner for Compliance in 2025

Navigating California’s new minimum wage 2025 laws requires more than just updating paychecks. Employers must assess payroll systems, conduct salary audits, and ensure compliance with industry-specific and local wage requirements. For many businesses, staying ahead of these updates feels like a full-time job—and it often is.

This is where having the right partner can make all the difference. DianaHR specializes in helping small and fast-growing businesses streamline HR and compliance processes, from onboarding to payroll and beyond.

With DianaHR’s experts guiding you every step of the way, employers can offload time-consuming tasks like wage adjustments, compliance monitoring, and navigating local ordinances.

By working with experts who understand the complexities of state regulations, you can save time, avoid costly penalties, and stay focused on growing your business.