Minimum Wage Increase
January 1st, 2016 the California minimum wage will increase from $9.00 per hour to $10.00 per hour. If you have employees that are currently making less than $10.00, you/we will need to change their rate for any hours worked starting January 1st. All hours worked in December can be paid at the old rate (even if the check date is in January). Make sure your salary employees are making at least the new minimum wage for the hours they work in January.
If your pay period covers hours worked in December and January (i.e. Monday 12-28 to Sunday 1-3), you/we will need to pay your employees at two different hourly rates, and can use options 1 or 2 below. You can use option 3 if you don’t want to mess with two different pay rates on one payroll:
1st Option - Add an additional hourly rate in the 'Employer/Setup/Pay Types' and title it 'Hourly 2' for the old under $10.00 per hour rate (this rate will only be used for one pay period and then can be made inactive so it does not show up on your 'Payroll Entry' screen in the future).
- In each employee's 'Compensation' screen (Employees/Setup/Compensation), add the old rate (the one that was under $10), in the 'Hourly 2' rate field (this should be at the end of the list of pay types).
- Change the ‘default rate’ in each hourly employee that currently is under $10.00 per hour to $10.00 (Employees/Setup/Compensation/Default Rate). This will automatically change the overtime rate as well. Save your changes.
- During 'Payroll Entry', enter the under $10.00 rate hours under 'AddH Hrs’ (aka ‘Hourly 2’ at the end of row) and the $10.00 rate hours under 'Reg Hrs' (front of row).
- If you have overtime hours, you can either pay them at the new ($10.00 x 1.5 = $15.00) rate or the 'Weighted Average' (see below)
- After you have finished processing this payroll, go back into Employer/Setup/Pay Types and select ‘Hourly 2’ pay type, then mark ‘Inactive’ and save.
Weighted Average - If you are paid two or more rates by the same employer during the workweek, the regular rate is the "weighted average" which is determined by dividing your total earnings for the workweek, including earnings during overtime hours, by the total hours worked during the workweek, including the overtime hours. For example, if you work 32 hours at $9.00 an hour and 10 hours during the same workweek at $10.00 an hour, your weighted average (and thus the regular rate for that workweek) is $9.24. This is calculated by adding your $388 straight time pay for the workweek [(32hours x $9.00/hour) + (10 hours x $10.00/hour) = $388] and dividing it by the 42 hours you worked. The overtime rate is then $12.35 ($9.24 x 1.5 = $13.86). You will need to type 'R' in the OT Hrs field on the 'Payroll Entry' screen and change the OT Rate to $13.86. This is a one-time temporary OT Rate change.
2nd Option - Give the employee 2 checks, one for the hours worked under $10.00 per hour and one for the hours worked at $10.00. First change the employee's hourly rate from the rate under $10.00 to $10.00 in the 'Employee Compensation 'Screen. This will automatically change the overtime rate also. Save the change.
- When entering payroll on the 'Payroll Entry' screen, go to the far right of the employee's pay line and click 'Add' under the '2nd Chk' heading. You will now have two pay lines for this employee. Do this for every employee that is receiving pay at the rate under $10.00 and the $10.00 rate on this payroll.
- On the first pay row for each employee, enter the hours they worked at the $10.00 rate (you already changed their rate to $10.00 in the 'Employee Compensation' screen).
- On the second row for each employee, type the letter 'R' in the hourly rate field and the employee's current hourly rate will show in a pop out window. Type $9.00 (or whatever the old rate was below the new $10 rate) in this window (this is a one-time temporary change). Then click back on the hourly box to enter the hours.
- If you have overtime hours, you can either pay them at the new ($10.00 x 1.5 = $15.00) rate or the 'Weighted Average' (see above).
- Calculate the payroll and then click on the 'Details' tab to see the two checks and the two rates for these employees.
3rd Option – Give everyone currently making less than the new minimum wage rate of $10.00 per hour a raise to $10.00 per hour early, so even if your pay period end date is not 12-31-15, you won’t need to deal with two different pay rates when processing payroll. This will cost more in labor costs than splitting the hours into two hourly rates.
Whether you chose option 1, option 2 or option 3, after reviewing the calculated payroll, approve the payroll and finish as you would normally do.
Need Help? - Give us a call and we will be glad to help you with this, just let us know which option you want to use. 909-657-6019