Get Ready for 2026: Increases to CA Minimum Wage & Employee Benefit Contribution Rates
As we turn the calendar to 2026, there are several things to be aware of for the new year that may affect the compensation and benefits of your employees.
IRS Increases 2026 Employee Benefit Contribution Rates
The IRS annually reviews and adjusts contribution limits for various employee benefit plans. The following are the updated maximum employee contribution rates for 2026:
The IRS has increased the standard mileage rate for business use of automobiles beginning January 1, 2026 to 72.5 cents per mile. This is a 2.5 cent increase from 2025.
The IRS has raised the limit an employee can contribute to 401(k), 403(b) and most 457(b) retirement plans to $24,500 per year. This is an increase of $1,000 from 2025.
The catch-up contribution for an employee who is or will be 50 in the 2026 calendar year will now be $8,000, which is an increase of $500 from 2025. For those who are 60 to 63 years of age in 2026, the catch-up will remain at $11,250.
Simple IRA plans (retirement plans designed for small businesses) have also changed for 2026. The maximum contribution an employee can make to a Simple IRA plan will increase from $16,500 to $17,000. Age 50+ catch-up contributions are also increased to $4,000 from $3,850. The “Super” catch-up for those ages 60-63 remains unchanged.
A Health Savings Account (HSA) is a great way for employees who participate in their employer’s High Deductible Health Plan (HDHP) to save money for health related expenses for both the long term and for current out-of-pocket costs. The IRS has also made increases to the annual contribution limits for this plan in 2026. The new limits are $4,400 (up $100) for individuals and $8,750 (up $200) for families. The minimum deductible for a plan to be considered as an HDHP will increase from $1,650 to $1,700 for employee-only coverage and from $3,300 to $3,400 for family coverage. Don’t forget, HSA funds are not required to be used up each year. They can be invested and saved for your lifetime.
The IRS has also increased the limit to how much an employee can contribute to a Flexible Savings Account (FSA). The annual contribution limit for Healthcare FSA plans will increase from $3,300 to $3,400. In addition, if the employer plan allows, employees may carryover up to $680 of unspent FSA money from one year to the next at the end of the plan year. An FSA is a great way for employees to reduce their taxable income and pay for qualified out-of-pocket medical, dental, and vision expenses. The annual contribution limit for Dependent Care FSA plans, which have not seen an increase for years, will now see a large increase from $5,000 to $7,500 in 2026. It is important to note these increases are subject to each employer’s plans. Also, FSA plans are subject to the “Use It or Lose It” rule which means unless your employer offers the carryover or grace provision, these funds must be used in the plan year or they will be forfeited.
Federal DOL Exempt Minimum Wage
There continues to be no change to the Department of Labor’s federal minimum for exempt employees. In 2024, the US District Court overturned the 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 continue at $684/week or $35,568/annually.
Many states, such as California, and cities or other localities, have a higher minimum wage for exempt employees and employers in those states, cities or localities, must follow their specific law for those employees.
2026 California Minimum Wage Increases
Minimum wage rates in California are subject to frequent changes, often increasing for specific cities or industries not just annually, but at various times throughout the year. As a reminder, the federal minimum wage remains unchanged at $7.25/hour.
Below are the minimum wages for some cities and counties within CA as well as the state minimum wage beginning January 1, 2026.
Additional increases for some California cities will begin in July, 2026 and we will follow up with those when they are all available.
| California State Minimum Wages | 2026 Increases |
|---|---|
|
All Employers (State Min) |
$16.90/hour |
|
All Employers – Exempt |
$70,304/year |
|
Fast Food Workers |
$20.00/hour |
|
Healthcare Workers (July 1, 2026) |
$25.00/hour – large systems/dialysis clinics $23.00/hour – most others $22.00/hour – community clinics |
|
Computer Professionals – Exempt |
$58.85/hour $10,214.42/month $122,573.13/year |
|
Commissioned Inside Sales – Exempt |
$25.35/hour (1.5 x min. wage) |
Exempt employees must also meet the duties test under the CA Labor Code
| Southern California City Minimum Wages | 2026 Increases |
|---|---|
|
San Diego |
$17.75/hour |
|
West Hollywood |
$20.25/hour |
| Northern California City Minimum Wages | 2026 Increases |
|---|---|
|
Belmont |
$18.95/hour |
|
Burlingame |
$17.86/hour |
|
Cupertino |
$18.70/hour |
|
Daly City |
$17.50/hour |
|
East Palo Alto |
$17.90/hour |
|
El Cerrito |
$18.82/hour |
|
Foster City |
$17.39/hour |
|
Half Moon Bay |
$17.91/hour |
|
Hayward |
$17.79/hour for 26 or more employees $16.90/hour for 25 or fewer employees |
|
Los Altos |
$18.70/hour |
|
Menlo Park |
$17.55/hour |
|
Mountain View |
$19.70/hour |
|
Novato |
$17.73/hour for 100 or more employees $17.46/hour for 26-99 employees $16.90/hour for 25 or fewer employees [state minimum] |
|
Oakland |
$17.34/hour |
|
Palo Alto |
$18.70/hour |
|
Petaluma |
$18.31/hour |
|
Redwood City |
$18.65/hour |
|
San Carlos |
$17.75/hour |
|
Santa Clara |
$18.70/hour |
|
South San Francisco |
$18.15/hour |
|
San Jose |
$18.45/hour |
|
San Mateo |
$18.60/hour |
|
San Mateo County (unincorporated areas) |
$17.95/hour |
|
Sonoma |
$18.47/hour for 26 or more employees – adjusted for inflation $17.38/hour for 25 or fewer employees – adjusted for inflation |
|
Sunnyvale |
$19.50/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.
