Get Ready for 2027: Increases to CA Minimum Wage & Employee Benefit Contribution Rates
Heading into 2027, it’s time to once again talk about changes in the regulatory world. We are seeing both stagnation and moving goalposts across a variety of payroll, benefit, and compliance-related topics. Navigating these changes early ensures your business remains compliant and your workforce operations avoid hiccups.
IRS Adjustments: Boosting Employee Benefits
The IRS is doing its usual economic tune-up, tweaking contribution limits to help benefits keep pace with inflation. The following maximum employee rates and structural guidelines take effect on January 1, 2027:
- • Retirement Plans: Employees looking to boost their retirement savings can now defer up to $25,500 per year in 401(k), 403(b), and most 457(b) plans.
- • Catch-Up Contributions: For employees aged 50 and older, the standard catch-up limit rises to $8,500 for a total of $34,000 per year. Meanwhile, the specialized “super catch-up” expansion for workers aged 60 to 63 steps up to a limit of $11,750 for a total of $37,250 per year. Small businesses utilizing Simple IRA plans will also see upward adjustments.
- • Health Savings Accounts (HSAs): To account for ongoing healthcare inflation, the IRS has bumped the maximum annual contributions and minimum deductible thresholds for individuals enrolled in a qualifying High Deductible Health Plan (HDHP). Don’t forget that HSA plans allow for lifelong carryover — making it easier to stay healthy and wealthy-ish.
- • Flexible Spending Accounts (FSAs): Annual contribution caps and maximum carryover allowances for Healthcare FSAs are again granted increases. FSAs are still one of the most common plans, but they differ from HSAs, and employees should double-check their employer’s plan to ensure whether the strict “Use It or Lose It” provision governs their unspent funds or if carry-over is allowed.
Mileage Reimbursement Rate
Following an unusual compliance year in 2026—which saw a rare mid-year IRS intervention raising the business standard mileage rate to 76 cents per mile due to volatile fuel costs—employers must ensure their expense systems are fully aligned with the upcoming 2027 IRS standard mileage benchmarks. The finalized national baseline for 2027 will serve as the tax-free reimbursement ceiling for employee vehicle use.
Minimum Wage: The Federal Freeze vs. California’s Heat Rise
When it comes to wage baselines, the federal government and California remain on entirely different trajectories.
On the federal side, requirements seem to remain frozen in time. The Department of Labor’s salary minimum for exempt roles remains at $684 per week ($35,568 annually), and the hourly minimum wage remains frozen at $7.25. Because federal thresholds are stuck in place, employers must defer to state and local laws, which have been moving faster than the mercury in a California heatwave.
California employers face new statewide operational baselines starting January 1, 2027:
- • Statewide Minimum Wage: The California state minimum wage increases to $17.40 per hour for all employers, representing an ongoing cost-of-living adjustment hoping to counter inflation.
- • The Exempt Salary Threshold Shift: Because California law ties its white-collar exempt status to the state-wide minimum wage, the minimum salary required to maintain the FLSA exemption classification jumps to $1,392 per week ($72,384 annually). Workers paid below this fixed salary threshold will automatically lose their exempt status, regardless of their job duties.
- • Local and Industry Variances: Countless municipal ordinances across California cities and counties enforce local minimum wages that exceed the state baseline. Additionally, unique industry carve-outs—such as the newly enacted agricultural minimum wage escalations climbing toward $20 an hour—require careful geographical monitoring.
Additional localized rate changes are scheduled to take effect in July 2027. We will provide a comprehensive breakdown of municipal and mid-year shifts as local jurisdictions certify their numbers.
| California State Minimum Wages | 2027 Increases |
|---|---|
|
All Employers (State Min) |
$17.40/hour |
|
All Employers – Exempt |
$72,384/year |
|
Fast Food Workers |
$20.00/hour |
|
Healthcare Workers (July 1, 2026) |
$25.00/hour – large systems/dialysis clinics – same in 2027 $23.00/hour – most others – same in 2027 $22.00/hour – community clinics (increasing to $25.00/hour July 1, 2027) |
|
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
| San Diego Minimum Wage | January 2027 Increases |
|---|---|
|
San Diego |
$18.35/hour |
For other California City minimum wages not shown below, please contact SDHR Consulting directly.
| California City Minimum Wages | January 2027 Increases |
|---|---|
|
Belmont |
$19.60/hour |
|
Burlingame |
$18.47/hour |
|
Cupertino |
$18.70/hour |
|
Daly City |
$17.50/hour |
|
East Palo Alto |
$17.90/hour |
|
El Cerrito |
$18.82/hour |
|
Foster City |
$17.85/hour |
|
Half Moon Bay |
$18.51/hour |
|
Hayward |
$18.39/hour for 26 or more employees $17.40/hour for 25 or fewer employees |
|
Los Altos |
$19.25/hour |
|
Menlo Park |
$18.05/hour |
|
Mountain View |
$20.25/hour |
|
Novato |
$18.25/hour for 100 or more employees $17.97/hour for 26-99 employees $17.40/hour for 25 or fewer employees [state minimum] |
|
Oakland |
$17.40/hour |
|
Palo Alto |
$19.25/hour |
|
Petaluma |
$18.93/hour |
|
Redwood City |
$19.30/hour |
|
Richmond |
$18.11/hour (with medical benefits)
$19.61/hour (without medical benefits) |
|
San Carlos |
$18.35/hour |
|
Santa Clara |
$19.25/hour |
|
San Jose |
$19.00/hour |
|
San Mateo |
$19.25/hour |
|
San Mateo County (unincorporated areas) |
$18.58/hour |
|
Sunnyvale |
$20.05/hour |
|
West Hollywood |
$20.87/hour (hotel) $20.94/hour (non-hotel) |
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.
