The minimum wage in California will increase on January 1, 2026, this time to $16.90 per hour, marking another step in the state’s ongoing effort to adjust wages to the rate of inflation and the cost of living. Although the 40-cent increase may seem small, it has significant effects. The new figure also raises the required wage for exempt employees, impacts certain special categories, and relates to several new labor laws that will take effect in 2026. Because of this, employers need to prepare.

The minimum wage in California has risen steadily since 1916, when it was just $0.16 per hour. It reached $1 in 1957 and $10 in 2016. The new wage of $16.90 for 2026 places California among the jurisdictions with the highest minimum wages in the country, ranking fourth after Washington, D.C., Washington State, and Connecticut.

The 2026 increase comes from a legal mechanism that allows for annual adjustments of up to 3.5% when national inflation exceeds 7%. This process raised the minimum wage to $16 in 2024 and $16.50 in 2025. Similarly, many cities and counties will apply wages higher than the state rate, as they have done in the past. Some sectors, such as fast food and healthcare, will also maintain higher wage floors.

Cities and counties that will pay a higher wage

• Belmont - $18.95 per hour
• Burlingame - $17.86 per hour
• East Palo Alto - $17.90 per hour
• El Cerrito - $18.82 per hour
• Half Moon Bay - $17.91 per hour
• Hayward - $17.79 per hour (for businesses with 26 or more employees)
• Los Altos - $18.70 per hour
• Los Angeles - $17.87 per hour
• Menlo Park - $17.55 per hour
• Mountain View - $19.70 per hour
• Palo Alto - $18.70 per hour
• Petaluma - $18.31 per hour
• Redwood City - $18.65 per hour
• Richmond - $19.18 per hour
• San Diego - $17.75 per hour
• San Jose - $18.45 per hour
• San Mateo - $18.60 per hour
• Santa Clara - $18.70 per hour
• Santa Rosa - $18.21 per hour
• San Francisco - $19.18 per hour
• South San Francisco - $18.15 per hour
• Sunnyvale - $19.50 per hour
• West Hollywood - $20.25 per hour

New annual minimum wage for exempt employees

Exempt employees are workers who are not entitled to overtime pay, provided they meet certain requirements. One of the most significant consequences of the minimum wage increase is its effect on these workers. California law requires that most exempt executive, administrative, and professional employees earn at least twice the state minimum wage for full-time employment. Therefore, on January 1, 2026, the annual minimum wage for these employees will increase from $68,640 to $70,304.

This change will affect thousands of employees across the state and will require employers to update compensation, review job classifications, and adjust budgets. Incorrect classification can result in significant legal liabilities, such as retroactive overtime pay, fines, and legal fees.

Some exempt categories have their own calculations based on the Consumer Price Index (CPI). As of January 1, 2026, they will be:

• Software professionals: minimum of $58.85 per hour, $10,214.44 per month, or $122,573.13 per year.
• Licensed physicians and surgeons: minimum of $107.17 per hour.

These rules seek to keep wages in line with market rates for highly specialized professions.

Although the minimum wage increase is the main change, it comes in a year full of new labor laws that influence compensation, wage transparency, and personnel management, making 2026 a particularly challenging year for businesses.

Adjustments to the Equal Pay Act (SB 642)

Revisions to the Equal Pay Act modify key definitions that directly impact pay documentation. Beginning in 2026:

• “Pay scale” must be a good-faith estimate of the expected pay range at hire.
• “Wages” will include all forms of compensation, such as bonuses, stock options, benefits, vacation, and overtime pay.
• Employees will be able to claim back pay for up to six years.

Penalties for unpaid wage judgments (SB 261)

Employers who fail to pay a wage judgment within 180 days will face fines of up to three times the amount owed, plus mandatory legal fees.

Expanded wage data reporting (SB 464)

Employers with 100 or more workers will face mandatory penalties — $100 per employee or $200 for repeat offenders — for failing to file wage reports. Since these reports are based on accurate wage and demographic data, proper updating for the minimum wage increase will be essential.

Therefore, employers should:

• Review local ordinances with higher minimum wages.
• Update payroll systems to the new minimum wage.
• Verify that exempt employees meet the new annual wage.
• Adjust wage documentation and audits to comply with SB 642.
• Conduct payroll audits to avoid SB 261 penalties.
• Prepare updated notices, policies, and records.

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