Increases to Employee Benefit Contribution Rates & CA Minimum Wage
As we get ready to turn the calendar to 2023, there are several things to be aware of for the new year that may affect the compensation and benefits of your employees. For information on Pay Strategies including California’s new Pay Transparency and Pay Scale Disclosure Law check out our recent blog.
IRS Increases 2023 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 2023:
Retirement Plan – The Largest Increase Ever!
The IRS has raised the limit an employee can contribute to a 401k or 403b retirement plan to $22,500 per year. This is an increase of $2,000 from 2022. In addition, the catch-up contribution for an employee who is 50 or older is increasing from $6,500 to $7,500.
The maximum contribution an employee can make to a Simple IRA plan will increase from $14,000 to $15,500. Employees over 50 can make a catch-up contribution to their Simple IRA of $3,500, an increase from $3,000. 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 increased the annual contribution limits for 2023. The new limits are $3,850 (up $200) for individuals and $7,750 (up $400) for families. The minimum deductible for a plan to be considered as an HDHP will increase from $1,400 to $1,500 for employee-only plans and from $2,800 to $3,000 for family plans.
The IRS has also increased the limit to how much an employee can contribute to a Flexible Savings Account (FSA). The annual contribution limit will increase from $2,850 to $3,050. In addition, an employer may choose to allow an employee to roll over up to $610 of unspent FSA money at the end of the plan year. This is an increase from a rollover amount of $570 in 2022. An FSA is another way employees can pay for qualified out-of-pocket medical, dental, and vision expenses.
2023 California Minimum Wage Increases
The state minimum wage, as well as many city minimum wages, are increasing effective January 1, 2023. Currently, the State minimum wage is different depending on the number of employees an employer has. Beginning in 2023, the minimum rate applies to all employers regardless of size. Below is information for the State and Southern California cities with increases for 2023. For all California minimum wages, including increases for 2023 in Northern California, click here.
| California State Minimum Wages | 2023 Increases |
|---|---|
| All Employers | $15.50/hour |
| All Employers – Exempt | $64,480/year |
| Computer Professionals – Exempt | $112,065.20/year |
| Commissioned Inside Sales – Exempt | $23.25 (1.5 x min. wage) |
| Exempt employees must also meet the duties test under the CA Labor Code |
| Southern California City Minimum Wages | 2023 Increases |
|---|---|
| San Diego – All Employers | $16.30/hour |
| West Hollywood: 50+ Employees 49 or fewer employees | $17.50/hour $17.00/hour |
For minimum wage increases in other states, check out the list here.
The new year is bringing many changes and we want to ensure you are aware of what may affect your organization. Our consultants are ready to assist with any questions and are happy to help guide you through the upcoming adjustments. Contact us today with any questions at info@sdhrconsulting.com.
