California Minimum Wage Rises to $17.40 on January 1, 2027: What to Budget For

What’s the new California minimum wage?

California’s statewide minimum wage rises to $17.40 an hour on January 1, 2027, up from the current $16.90. The state’s Department of Finance certified the increase on July 31, 2026. It’s an automatic cost-of-living adjustment, not a new law or ballot measure, and it’s required every year under Labor Code Section 1182.12 whenever inflation calls for one.

Where does the 2.99% number come from?

California law caps this annual adjustment at the lesser of 3.5% or the change in the relevant consumer price index (CPI-W). For this cycle, the CPI-based calculation came out to 2.99%, so that’s the figure the Director of Finance applied to the current $16.90 rate to get $17.40. If inflation had come in higher, the increase would still have been capped at 3.5%; if it had come in negative, state law doesn’t allow the minimum wage to drop, it just wouldn’t go up that year.

Does this affect fast food wages too?

No, and this is the detail that trips people up. Fast food workers at chains with 60 or more locations nationwide are covered by a separate law, AB 1228, with its own $20 an hour minimum that’s been in effect since April 2024. That rate isn’t tied to the same automatic CPI formula as the statewide minimum. A separate Fast Food Council has authority to raise it annually, capped at the same 3.5%-or-CPI formula, but as of this writing there’s no increase scheduled or adopted for 2027, so the fast food rate stays at $20 while the general minimum climbs to $17.40 around it.

What about tipped employees?

California doesn’t allow a tip credit, full stop. Every employee, tipped or not, is owed the full minimum wage in wages, with tips on top, not counted toward the hourly rate. This is a sharp break from federal rules, where an employer can pay a cash wage as low as $2.13 an hour and count tips toward the rest. If you’re used to thinking about tip credits from a multi-state operation or from reading national restaurant coverage, leave that assumption at the California border. It doesn’t apply here and never has.

Does this change the exempt employee salary threshold too?

Yes. California ties the minimum salary for full-time exempt employees to two times the state minimum wage. That threshold rises to $72,384 a year ($6,032 a month) on January 1, 2027, up from $70,304. If you’ve got a salaried manager classified as exempt, their salary needs to clear that new number on January 1, or they’re no longer legally exempt from overtime, regardless of their job title or duties.

What should restaurant and retail owners actually do before January 1?

• Run current hourly staff through the new rate. Anyone at $16.90 now moves to $17.40. Anyone between $16.90 and $17.40 also needs a bump, since nobody can legally stay below the new floor.
• Check every salaried exempt employee against $72,384. If someone’s salary sits between the old and new threshold, you either raise them to clear it or reclassify them as non-exempt and start tracking their hours and overtime.
• Check local minimums too. More than 40 California cities and counties set their own minimum wage higher than the state floor, some well above $18. The state increase doesn’t lower those; if your city’s local rate is already above $17.40, it stays the rate that applies.
• Model the margin impact now, not in January. A 2.99% increase in base wages isn’t dramatic on its own, but layered on existing labor costs, especially for a business running close to the state’s $20 fast-food rate or local minimums above it, it’s worth running actual numbers rather than guessing. A restaurant with $400,000 in annual hourly payroll at close to minimum wage is looking at roughly $12,000 a year in added cost from this increase alone, before any menu pricing response.
• Decide on pricing before the increase hits, not after. Businesses that wait until payroll costs show up to adjust pricing are reacting; businesses that build the known January 1 increase into fall pricing decisions are planning. The rate isn’t a surprise, it was certified in July.

This is general information, not legal advice. Wage and hour compliance is fact-specific to your business, your city, and your workforce classification. If you’re not sure whether an employee is correctly classified as exempt, or how your city’s local minimum interacts with the state rate, talk to an employment attorney or your payroll provider before January 1, not after a complaint arrives.

Keeping clean, accurate point-of-sale and payroll reconciliation makes this kind of annual compliance check faster every year, since you’re not reconstructing hourly rates and classifications from scratch each time the state adjusts the floor. If you want help thinking through how a wage increase like this flows through your Clover reporting and payroll process, reach out and we’ll walk through it with you (yanpayments.com/#cta).

Sources: Governor Newsom Announces California Will Raise Statewide Minimum Wage, Office of Governor Gavin Newsom 2027 California Minimum Wage Increasing to $17.40/Hour, CalChamber HRWatchdog California’s Minimum Wage to Increase to $17.40 Per Hour on January 1, 2027, Atkinson, Andelson, Loya, Ruud & Romo