California’s statewide minimum wage goes from $16.90 to $17.40 an hour on January 1, 2027, following the Department of Finance’s certification at the end of July. Most employers read that as a 40-cent line item for hourly staff. The bigger number is hidden one step away. California ties the salary floor for exempt executive, administrative, and professional employees to twice the minimum wage, so on New Year’s Day the minimum salary for an exempt office manager becomes $72,384 a year. A salaried manager at $70,000 in a Rancho Cucamonga dental office or a Sacramento HVAC company isn’t just due for a raise next year. That manager is already below the 2026 line.
How is California’s minimum wage set each year?
Labor Code § 1182.12(c) requires the Director of Finance to calculate the adjustment by August 1. The increase is the lesser of 3.5% and the change in the U.S. Consumer Price Index for Urban Wage Earners and Clerical Workers over the July-to-June period, rounded to the nearest ten cents, and it can’t go down. This year the index rose just under 3%, which moves $16.90 to $17.40. The Department of Industrial Relations announced the figure and the resulting salary threshold in a news release.
What does the new rate mean for exempt salaried employees?
Labor Code § 515(a) sets the salary floor for exempt executive, administrative, and professional employees at double the state minimum wage for a 40-hour week. For 2027 that’s $17.40 times 2 times 2,080 hours, or $72,384 a year, which is $6,032 a month. The 2026 figure is $70,304. The threshold uses the full-time amount even for someone who works a reduced schedule, so a three-day-a-week exempt controller needs the same salary as a full-time one.
Salary alone never makes someone exempt in California. The employee must also be primarily engaged in exempt duties, which California measures as more than half of actual worktime, and must regularly exercise discretion and independent judgment. The federal test is looser. After a federal court vacated the Labor Department’s 2024 salary rule, the department formally restored the $684-a-week federal threshold in a May 15, 2026 technical amendment. That’s $35,568 a year, less than half of California’s number. Multistate employers that build pay bands around federal rules routinely miss California’s.
| California wage figure | 2026 | 2027 |
|---|---|---|
| Statewide minimum wage | $16.90/hour | $17.40/hour |
| Exempt executive, administrative, professional salary | $70,304/year | $72,384/year ($6,032/month) |
| Computer software professional exemption (§ 515.5) | $58.85/hour or $122,573.13/year | Not yet announced |
| Licensed physician hourly exemption (§ 515.6) | $107.17/hour | Not yet announced |
| Fast food restaurant minimum wage | $20.00/hour | $20.00/hour unless the Fast Food Council acts |
| Federal FLSA salary level | $684/week | $684/week unless changed |
Do Inland Empire or Sacramento cities have a higher local minimum wage?
Not currently. The UC Berkeley Labor Center’s inventory of local wage ordinances lists none in Riverside, San Bernardino, Sacramento, Placer, Yolo, or El Dorado counties, so the state rate governs throughout both regions. The exception to watch is geography. Unincorporated Los Angeles County and the City of Los Angeles both set their own higher rates, reported at $18.47 and $18.42 as of July 1, 2026. An Ontario or Pomona Valley employer whose service techs or merchandisers spend part of the week in those areas may owe the local rate for those hours. Local ordinances can change mid-year, so check the inventory before budgeting.
Which industries follow a different minimum wage?
Two sectors have their own schedules. Limited-service restaurants in national chains with more than 60 locations pay at least $20 an hour under the fast food law, Labor Code § 1474 and following, and as of early September the Fast Food Council hadn’t adopted an increase. Health care is more complicated. Under Labor Code § 1182.14, covered health care employers moved to new rates on July 1, 2026: $25 an hour for large health systems and dialysis clinics, $23 for most other covered facilities, and $22 for covered clinics, which step to $25 on July 1, 2027. Safety-net and rural hospitals follow a slower path. The Department of Industrial Relations’ health care minimum wage FAQ lists covered facility types, and a private dental practice isn’t one of them. A stand-alone dental office in Temecula generally follows the $17.40 state rate, though a practice affiliated with a covered clinic may not.
What does the change cost a typical small business?
Take a Sacramento HVAC contractor with two salaried office managers at $70,000 and eight full-time hourly employees at $17.00. The managers are already misclassified in 2026, because $70,000 is $304 short of the $70,304 threshold. For 2027, bringing both to $72,384 costs $4,768 in added salary, and raising the eight hourly workers to $17.40 costs $6,656. Employer Social Security and Medicare at 7.65% adds about $874. The total is roughly $12,300 a year before any overtime is paid at the higher rate. Federal and state unemployment taxes don’t increase, because each worker already earns more than the $7,000 taxable wage base, and State Disability Insurance is withheld from employees at 1.3% with no wage cap in 2026.
There’s a separate cost that has nothing to do with the raise. Because California still owes the federal government for unemployment insurance loans, employers here lose part of their federal unemployment tax credit. EDD reports the reduction for 2025 wages was 1.2%, which makes the effective federal unemployment tax $126 per employee, and it projects a 1.5% reduction for 2026, or $147 per employee, subject to the Labor Department’s final determination in November. For ten employees, the credit reduction alone would add about $1,050 for 2026. EDD’s FUTA credit reduction page tracks the numbers.
The alternative to raising salaries is converting managers to hourly pay. A $70,000 salary works out to $33.65 an hour, with overtime at $50.48, and it brings meal and rest period obligations, timekeeping, and daily overtime under the rules we covered in our post on California overtime and the federal deduction. For most small offices, the raise is cheaper than the conversion.
What’s the exposure if a salaried employee is misclassified?
It adds up faster than owners expect. An employee treated as exempt who doesn’t meet the salary or duties test can recover unpaid overtime with interest, attorney’s fees, and costs under § 1194, generally reaching back three years, or four under the Unfair Competition Law. Missed meal and rest periods add an hour of pay per workday under § 226.7, and the California Supreme Court held in Naranjo v. Spectrum Security Services, Inc. (2022) 13 Cal.5th 93 that those premiums are wages, which can support wage statement claims under § 226 (capped at $4,000 per employee) and waiting time penalties of up to 30 days’ pay under § 203 when the employee leaves. On top of that, the Private Attorneys General Act allows civil penalties, though the 2024 reforms cap them at 15% or 30% of the default amount for employers that take reasonable compliance steps before or promptly after receiving notice.
Does any of this apply to S corporation owners who pay themselves a salary?
The tax rule and the wage rule are separate questions, and owner-employees sometimes blur them. For federal tax purposes, an S corporation shareholder who works in the business must take reasonable compensation as wages, as the IRS explains in its guidance on S corporation officers. Reasonable compensation is measured against what the services are worth, not against the exempt salary floor. California wage-and-hour law, meanwhile, has no general exception for owners who draw a salary. The federal regulation that treats a 20% owner who actively manages the business as exempt regardless of pay doesn’t appear to have a California counterpart. An owner-manager who draws $50,000 in wages to hold down payroll tax isn’t automatically exempt under § 515, and that can matter if the relationship among co-owners sours and one of them files a wage claim. Planning the owner’s salary is worth doing with both rules on the table.
Frequently Asked Questions
What will California’s minimum wage be in 2027?
$17.40 an hour statewide starting January 1, 2027, up from $16.90. Some cities and industries, including fast food and covered health care employers, have higher rates.
What is the minimum salary for an exempt employee in California in 2027?
$72,384 a year, or $6,032 a month, which is two times the state minimum wage for full-time work. The 2026 threshold is $70,304.
Can I pay a part-time exempt employee a prorated salary?
No. The salary test is based on full-time employment, so an exempt employee working a reduced schedule still needs at least the full threshold amount to keep the exemption.
Do Riverside or San Bernardino County cities have their own minimum wage?
Not currently. The state rate applies there and in the Sacramento region, but workers who spend time in unincorporated Los Angeles County or the City of Los Angeles may be owed those local rates.
Does the health care minimum wage apply to dental offices?
Private dental practices aren’t on the state’s list of covered health care facilities, so they generally follow the statewide minimum wage. Practices tied to a covered clinic should check their status.
Does the federal $684-a-week salary level matter in California?
Only for federal overtime purposes. California employers must meet the higher state threshold and California’s stricter duties test to treat an employee as exempt.
How North Star Law Firm Can Help
North Star Law Firm helps California small businesses review exempt classifications, budget payroll changes, and set owner compensation that works under both wage-and-hour law and tax law. Phillip Zagotti is a California attorney and a CPA, so a classification review can include the payroll tax and S corporation consequences in the same engagement. Learn more about the firm’s business and contract law practice, its payroll tax work, and S corporation planning, or schedule a consultation before your 2027 budget is final.