Get Ready for 2025: Increases to CA Minimum Wage & Employee Benefit Contribution Rates
As we get ready to turn the calendar to 2025, there are several things to be aware of for the new year that may affect the compensation and benefits of your employees.
IRS Increases 2025 Employee Benefit Contribution Rates
Each year the IRS reviews the contribution rates for various employee benefits and determines if an increase in the maximum an employee can contribute to the plan should be made. Here are the changes for 2025:
The IRS has raised the limit an employee can contribute to a 401k or 403b retirement plan to $23,500 per year. This is an increase of $500 from 2024.
The catch-up contribution for an employee who is 50 or older will be $7500 which is the same as 2024. A new increased catch-up amount will be available for those who are 60 to 63 years of age. This will be $11,250 per year beginning in 2025.
The maximum contribution an employee can make to a Simple IRA plan will increase from $16,000 to $16,500. Employees over 50 can make a catch-up contribution to their Simple IRA of $3,500 which is the same as 2024. A Simple IRA is a retirement plan designed for small businesses.
A Health Savings Account (HSA) is a great way for employees to help pay for their out-of-pocket costs when they have a High Deductible Health Plan (HDHP). The IRS has made a slight increase to the annual contribution limits for 2025. The new limits are $4,300 (up $150) for individuals and $8,550 (up $250) for families. The minimum deductible for a plan to be considered as an HDHP will increase from $1,600 to $1,650 for employee-only plans and from $3,200 to $3,300 for family plans.
The IRS has also increased the limit to how much an employee can contribute to a Health Flexible Savings Account (FSA). The annual contribution limit will increase from $3,200 to $3,300. In addition, an employer may choose to allow an employee to roll over up to $660 of unspent FSA money at the end of the plan year. This is an increase from a rollover amount of $640 in 2024. An FSA is another way employees can pay for qualified out-of-pocket medical, dental, and vision expenses.
Federal DOL Exempt Minimum Wage Rule Overturned
On November 15th, the US District Court overturned the Department of Labor’s rule which raised the minimum wage for an employee to be exempt from overtime under the Fair Labor Standards Act. This means that the minimum wage for an exempt employee will remain at $684/week or $35,568/annually.
Many states, such as California, have a higher minimum wage for exempt employees and employers in those states must follow state law for the employees who work in those states.
2025 California Minimum Wage Increases
Californians went to the polls in November and rejected Proposition 32 which would have increased the minimum wage to $18/hour for all employers by 2026. Under the proposition, the upcoming minimum wage increases depended on the size of the employer. Employers with 26 or more would have had to pay $17/hour for the remainder of 2024 and $18/hour beginning on January 1, 2025. Employers with 25 or fewer employees would have had to pay $17/hour beginning January 1, 2025.
Since Proposition 32 was rejected by voters, the state minimum wage, as well as many city minimum wages, are increasing at the rate that had been previously determined effective January 1, 2025. Below is information for the State and California cities with increases for 2025.
| California State Minimum Wages | 2025 Increases |
|---|---|
|
All Employers |
$16.50/hour |
|
All Employers – Exempt |
$68,640/year |
|
Computer Professionals – Exempt |
$56.97/hour $9,888.13/month $118,657.43/year |
|
Commissioned Inside Sales – Exempt |
$24.75/hour (1.5 x min. wage) |
|
Exempt employees must also meet the duties test under the CA Labor Code |
| Southern California City Minimum Wages | 2025 Increases |
|---|---|
|
San Diego |
$17.25/hour |
|
West Hollywood |
$19.65/hour |
| Northern California City Minimum Wages | 2025 Increases |
|---|---|
|
Belmont |
$18.30/hour |
|
Burlingame |
$17.43/hour |
|
Cupertino |
$17.75/hour |
|
Daly City |
$17.07/hour |
|
East Palo Alto |
$17.45/hour |
|
El Cerrito |
$18.34/hour |
|
Foster City |
$17.40/hour |
|
Half Moon Bay |
$17.47/hour |
|
Hayward |
$17.36/hour for 26 or more employees $16.50/hour for 25 or fewer employees |
|
Los Altos |
$18.20/hour |
|
Menlo Park |
$17.10/hour |
|
Mountain View |
$19.20/hour |
|
Novato |
$17.27/hour for 100 or more employees $17.00/hour for 26-99 employees $16.50/hour for 25 or fewer employees [state minimum] |
|
Oakland |
$16.89/hour |
|
Palo Alto |
$18.20/hour |
|
Petaluma |
$17.97/hour |
|
Redwood |
$18.20/hour |
|
San Carlos |
$17.32/hour |
|
Santa Clara |
$18.20/hour |
|
South San Francisco |
$17.70/hour |
|
San Jose |
$17.95/hour |
|
San Mateo |
$17.95/hour |
|
San Mateo County (unincorporated areas) |
$17.46/hour |
|
Sonoma |
$18.02/hour for 26 or more employees $16.96/hour for 25 or fewer employees |
|
Sunnyvale |
$19.00/hour
|
Our HR Consultants partner with clients of all industries and sizes on compensation services including CA’s 2023 Pay Transparency and Pay Disclosure law requirements, job benchmarking, and total rewards. Contact us to learn more.
