UPDATE: On June 10, 2020, the July 1, 2020 Minimum Wage Changes chart was revised to include the announced hotel minimum wage rates in Los Angeles and Santa Monica, California.

For the past few months, we have been keeping a very safe distance from each other: thousands of miles. However, as more businesses reopen across the country, we realize it is time to come together (virtually) to discuss an additional challenge some employers might face in the coming weeks: an increased minimum wage obligation for non-exempt employees. Like a band reuniting for one last tour (until the next last one) that you overpaid to see, we will give the people what they want: the hits, i.e., upcoming changes to the minimum wage, and the minimum cash wage and maximum tip credit for tipped employees. Afterwards, we "show our math" by discussing recent changes, how COVID-19 has or has not affected rates, and overtime-related developments at the federal level.

July 1, 2020 Minimum Wage Changes

Fall Minimum Wage Changes

Notable Federal Developments

On May 18, 2020, the U.S. Department of Labor's Wage and Hour Division (WHD) announced a final rule withdrawing two existing regulations under the Fair Labor Standards Act (FLSA) concerning establishments that lack or may have a "retail concept" for purposes of the FLSA's 7(i) exemption for certain commissioned employees employed by a retail or service establishment.

On May 20, 2020, WHD released its final rule revising the FLSA fluctuating workweek regulation. The final rule confirms that incentive payments—such as bonuses, commissions, and other premium payments—made in addition to the salary are compatible with the use of the fluctuating workweek method of compensation. WHD also clarifies other aspects of the fluctuating workweek method that have confused courts and employers alike. The final rule provides much-needed clarity to the regulated community and provides additional flexibility to employees and employers in structuring compensation arrangements that align with their objectives.

Notable State Developments

Rhode Island: On March 10, 2020, Governor Gina Raimondo (D) signed two bills, H. 7157 and S. 5147, that increase the state minimum wage from $10.50 to $11.50 per hour on October 1, 2020 and, as a result, increase the minimum cash wage for tipped employees from $6.61 to $7.61, as the maximum tip credit remains $3.89 per hour.

Virginia: On April 22, 2020, during a special legislative session, the Virginia General Assembly approved Governor Ralph Northam’s (D) proposed amendment to a bill that increases the Commonwealth’s minimum wage. The minimum wage will increase from $7.25 to $9.50 per hour effective May 1, 2021, then to $11.00 and $12.00 per hour on January 1, 2022 and 2023, respectively. The minimum wage could increase to $15.00 per hour by 2026 if the General Assembly reenacts these rate increases before July 1, 2024; otherwise, the minimum wage will continue to increase after January 1, 2025, but at a slower rate tied to inflation.

Effect on Exempt Employees: Notably, the amendments affect white-collar exempt employees. Previously, Virginia exempted from its minimum wage law employees whose employment the federal Fair Labor Standards Act (FLSA) covers. However, effective July 1, 2020, the bills revise and limit the exemption to FLSA subminimum wage certificate employees. Because Virginia's law does not contain a standalone exemption for bona fide executive, administrative, or professional employees, it means employers must pay these employees at least the state minimum wage for each hour they work in a workweek. The change might not have an immediate impact, but, as the state minimum wage rate increases and the minimum salary or fee amount the FLSA requires stays the same, employers will need to pay closer attention to how many hours these employees work in a workweek to avoid a state minimum wage violation.

Washington State: In mid-December 2019, the Washington State Department of Labor & Industries revised its minimum wage and overtime rules concerning white-collar workers, including exempt outside sales employees; these changes take effect on July 1, 2020. A few months later, it realized these rules contained some inadvertent errors; for outside sales employees, the Department said its intent was to align substantially the state test with the test under the FLSA. On April 7, 2020, the Department finalized its corrections, so that, effective July 1, an outside salesperson is an employee: 1) whose primary duty is either making sales (including any sale, exchange, contract to sell, consignment for sale, shipment for sale or other disposition) or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; 2) who is customarily and regularly engaged away from the employer's place(s) of business in performing such primary duty; and 3) who is compensated by the employer on a guaranteed salary, commission or fee basis and who is advised of the employee's status as an outside salesperson. Although our focus here is outside salespeople, do not forget that standards for exempt executive, administrative, and professional (including computer) employees will change on July 1, 2020.

Other July 1 State Law Changes: In Colorado, among numerous other changes,  pay standards for exempt executive, administrative, and professional employees will change slightly; such employees must be paid a salary at the level set by state law (starting July 1, $684 per week and $35,568 annually) that also provides the employee payment of the minimum wage for all hours in a workweek.

Notable Local Developments

Battle of the California Minimum Wage Ordinances: Although there has been a level of relative consistency throughout counties in Northern California's San Francisco Bay Area concerning responses to COVID-19, the cities differ concerning their approach to the minimum wage increases, with some jurisdictions holding back and others going forward.

• On February 25, 2020, Hayward enacted a minimum wage ordinance that was to take effect on July 1, 2020. Less than two months later, on April 14, 2020, it voted to delay the effective date to January 1, 2021, at which time employers with 26 or more employees will be subject to a $15.00 per hour rate, whereas a $14.00 per hour rate will apply to employers with 25 or fewer employees. Additionally, it reset the rate schedule so each rate changes on January 1. Although generally the rates adjust on January 1, the city council sets a $15.00 per hour rate for employers with 25 or fewer employees as of January 1, 2023, meaning the 2022 adjustment cannot exceed $15.00 per hour; on January 1, 2024, this rate will resume annual adjustments.
• On March 9, 2020, San Carlos enacted a new minimum wage ordinance. July 1, 2020 was the pre-COVID-19 start date for its ordinance that would require all covered employers to pay employees $15.00 per hour. However, two months later, on May 11, the city voted to delay the start to January 1, 2021. However, there will be a slightly higher rate: $15.00 per hour plus 3.5% or an increase that corresponds to consumer price index changes, whichever is less.
• On April 21, 2020, Alameda scheduled then withdrew an ordinance to delay the pre-scheduled July 1, 2020 minimum wage increase to January 1, 2021.
• On May 5, Fremont's agenda included a request that staff prepare an amendment that would delay the scheduled July 1, 2020 rates: a minimum wage increase for employees of employers with 26 or more employees, and a rate that would first apply to employers with 25 or fewer employees.
• On May 19, Santa Rosa voted not to delay the start date for its minimum wage ordinance from July 1, 2020 to January 1, 2021.

Berkeley, Emeryville, Milpitas, and San Francisco proceeded with their annual adjustments effective July 1, 2020; in Berkeley, Emeryville, and San Francisco, the applicable rate will exceed $16.00 per hour, with Emeryville knocking on $17's door at $16.84.

In Southern California, on May 26, the Los Angeles County Board of Supervisors was supposed to vote on a motion to have staff analyze the pros and cons of postponing the July 1, 2020 minimum wage increase, but it referred the item back to the sponsor, and it is unclear whether and when it might reappear on the agenda.

Throughout the COVID-19 crisis, inside and outside California, stakeholders have debated the role the minimum wage plays before, during, and after a public health emergency. Some argue a higher minimum wage rate can help employees sustain themselves better when a business needs to temporarily close or limit operations, whereas others argue higher compensation may accelerate a business's decline, which leads to employees lacking employment. This debate will continue and might heat up more later in the year as more states prepare to announce what their adjusted minimum wage rate will be on January 1, 2021.

Chicago, Illinois: On July 1, 2020, statutory amendments the city made to its minimum wage ordinance in late 2019 will take effect (see here for our previous discussion). Also effective July 1 are revised rules the city adopted on May 12, 2020. For example, the rules expand the "first" paycheck notice requirement to be an "annual" paycheck notice requirement, require mandatory notices and posters to be a specific size, discuss how employers can deliver these items (hard copies or electronically), and expand the languages in which employers must provide notices and posters. Additionally, particularly of interest for employers with tipped and non-tipped staff, a revised recordkeeping requirement requires employers to identify whether an employee is a tipped employee, a non-tipped employee, or performs duties of both tipped and non-tipped positions.

We will continue to monitor and report on minimum wage and overtime developments as they occur.